J. C. Penney Company, Inc. reported a loss of $489 million, or $1.94 per share, in the third quarter after special charnges but pointed to improving sales trends.
Highlights include:
- Achieved positive comparable store sales in October
- Comparable store sales and gross margin improved sequentially throughout the quarter
- Sales on jcp.com increased 24.5 percent for the quarter
- Repaid $200 million from revolving credit facility
- Opened 30 new Sephora inside JCPenney locations, bringing total to 446
Myron E. (Mike) Ullman, III, Chief Executive Officer of JCPenney, said, “Our strategies to reconnect with customers are beginning to take hold, and this became increasingly clear as the quarter progressed. This is the result of the tremendous efforts of the associates across our Company to restore the merchandise customers want and deliver an unmatched shopping experience. We are proud of the Company's October sales performance, encouraged by the early weeks of November, and believe we are making strides toward a path to long-term profitable growth.”
Financial Results
For the third quarter, JCPenney reported net sales of $2.78 billion compared to $2.93 billion in the fiscal third quarter of 2012. Comparable store sales declined 4.8 percent for the quarter, which represented a sequential improvement of 710 basis points when compared to the second quarter of fiscal 2013. The quarter ended with a positive 0.9 percent comparable store sales gain in October. In addition, sales results improved sequentially each month within the quarter. Online sales through jcp.com were $266 million for the quarter, up 24.5 percent versus the same period last year and reflecting sequential increases through the quarter.
Women's apparel, men's apparel and fine jewelry were the Company's top performing merchandise divisions.
For the third quarter, gross margin was 29.5 percent of sales, compared to 32.5 percent in the same quarter last year. Gross margin for the third quarter was negatively impacted by lower clearance margins due to the overhang of inventory from the first two quarters of the year, higher levels of clearance units sold, as well as the Company's transition back to a promotional pricing strategy as compared to last year's strategy. Notwithstanding, gross margin did improve sequentially throughout the quarter.
SG&A expenses for the quarter were approximately $1 billion, down 1.9 percent from the previous quarter and down 7.5 percent from the third quarter of 2012.
Operating loss for the fiscal third quarter of 2013 was $401 million. The Company incurred $46 million in restructuring and management transition charges, as follows:
- Home office and stores: ($6) million;
- Store fixtures: $10 million;
- Management transition: $3 million; and
- Other: $39 million, including $36 million relating to the return of shares of Martha Stewart Living Omnimedia previously acquired by the Company.
In the third quarter, the Company's recognized tax benefit was $11 million reflecting a significant reduction in tax benefits typically recognized from federal and state loss carry-forwards due to the recognition of a tax valuation allowance of $184 million during the quarter. This resulted in an effective tax rate of only 2.2 percent for the third quarter compared to 41.7 percent in the third quarter of 2012 and negatively impacted earnings per share by $0.73.
For the third quarter, the Company incurred a net loss in the amount of $489 million or $1.94 per share. This reflects:
- ($0.73) of loss associated with the tax valuation allowance;
- ($0.18) of restructuring and management transition charges;
- ($0.04) for primary pension plan expense; and
- $0.09 of benefit on the net gain on the sale of a non-operating asset.
Adjusted net loss for the quarter was $457 million, or $1.81 per share, excluding the restructuring and management transition charges, primary pension plan expense, and net gain on the sale of a non-operating asset. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
The adjusted net loss of $1.81 per share includes the $0.73 of loss associated with the tax valuation allowance.
Cash Flow and Financial Condition
Operating cash flow was a use of $737 million, reflecting net operating losses and an increase of $592 million in inventory, which includes our typical seasonal build in inventory in preparation for the holiday season. Financing cash flow was a source of $557 million, reflecting the net proceeds from the Company's equity offering of $786 million. In addition, financing cash flow included a voluntary repayment of $200 million principal amount under the Company's revolving credit facility.
Cash and cash equivalents at the end of the third quarter were $1.227 billion. The Company's total available liquidity, which includes cash and cash equivalents as well as the availability under the Company's revolving credit facility, was $1.71 billion at quarter end. Total debt at the end of the quarter was $5.612 billion, including $650 million outstanding on the Company's revolving credit facility.
In the third quarter, the Company paid $161 million in capital expenditures. Accrued and unpaid expenditures were $102 million at the end of the quarter.
Mr. Ullman continued, “The spirit and determination of our associates has enabled us to maintain our momentum going into the fourth quarter. We are committed to building on our progress by winning this holiday season. The continued strong support of our domestic and international suppliers has helped ensure our merchandise assortment is outstanding. Furthermore, our new marketing campaign, which launched this week, will help remind customers that JCPenney is the destination for great holiday gifts that fit their budget.”
Outlook
The Company's current outlook for the fourth quarter of 2013 is as follows:
- Comparable store sales and gross margin are expected to improve sequentially and year over year;
- SG&A expenses are expected to be below last year's levels;
- Depreciation and amortization is expected to be approximately $165 million;
- Interest expense is expected to be in line with third quarter;
- Capital expenditures are expected to be approximately $175 million in the fourth quarter including accrued and unpaid expenditures and approximately $300 million for fiscal 2014;
- Inventory is expected to be approximately $2.85 billion at year end;
- Total available liquidity is expected to be in excess of $2 billion at year end.
J. C. PENNEY COMPANY, INC.
SUMMARY OF OPERATING RESULTS
(Unaudited)
(Amounts in millions except per share data)
| |
Three Months Ended | |
Nine Months Ended | |
||||||||||||||||||
| Statements of Operations: | November 2, 2013 | |
October 27, 2012 | |
% Inc. (Dec) | |
November 2, 2013 | |
October 27, 2012 | |
% Inc. (Dec) | |
||||||||||
| Total net sales | $ | 2,779 | |
|
$ | 2,927 | |
|
(5.1 | )% | |
$ | 8,077 | |
|
$ | 9,101 | |
|
(11.3 | )% | |
| Cost of goods sold | 1,960 | |
|
1,975 | |
|
(0.8 | )% | |
5,659 | |
|
5,959 | |
|
(5.0 | )% | |
||||
| Gross margin | 819 | |
|
952 | |
|
(14.0 | )% | |
2,418 | |
|
3,142 | |
|
(23.0 | )% | |
||||
| Operating expenses/(income): | |
|
|
|
|
|
|
|
|
|
|
|
||||||||||
| Selling, general and administrative (SG&A) | 1,006 | |
|
1,087 | |
|
(7.5 | )% | |
3,110 | |
|
3,297 | |
|
(5.7 | )% | |
||||
| Primary pension plan | 25 | |
|
42 | |
|
(40.5 | )% | |
75 | |
|
139 | |
|
(46.0 | )% | |
||||
| Supplemental pension plans | 9 | |
|
9 | |
|
0.0 | % | |
27 | |
|
28 | |
|
(3.6 | )% | |
||||
| Total pension | 34 | |
|
51 | |
|
(33.3 | )% | |
102 | |
|
167 | |
|
(38.9 | )% | |
||||
| Depreciation and amortization | 161 | |
|
133 | |
|
21.1 | % | |
440 | |
|
386 | |
|
14.0 | % | |
||||
| Real estate and other, net | (27 | ) | |
(197 | ) | |
(86.3 | )% | ||||||||||||||
