A shopper makes a purchase at the JC Penney department store in North Riverside, Illinois, the US. Picture: REUTERS
A shopper makes a purchase at the JC Penney department store in North Riverside, Illinois, the US. Picture: REUTERS

Bengaluru/London — Same-store sales fell more than expected at JC Penney in the first quarter and its net loss nearly doubled after the retailer exited its appliance and in-store furniture businesses, sending shares down more than 9% on Tuesday.

The 117-year-old department store chain, which earlier this year said it was ditching major appliances such as refrigerators and washing machines to focus on clothing, said the move cut comparable sales by 20 basis points.

CEO Jill Soltau, on an earnings conference call, warned investors that Penney would likely take a further hit if US President Donald Trump imposed additional tariffs on another $300bn worth of imports from China. “We do anticipate a more meaningful impact on both our private and national brands if the potential fourth tranche of tariffs does go into effect.” 

Shares sank 9.6% to $1.04 in morning trading. Penney was the second biggest decliner among S&P 600 companies.

Washington’s escalation of a 10-month trade war with Beijing by raising levies on $200bn of Chinese goods had a minimal impact on the business thus far, Soltau said. She reassured investors the company had worked hard “for the better part of the last several years” to reduce reliance on Chinese suppliers and would try to reduce any consequential impact.

Last week, Macy’s and Walmart delivered a similar warning, alerting investors that prices for shoppers would rise due to higher tariffs on goods from China.

‘Weak operator’

Some analysts expressed concern about Penney’s future prospects. A key concern is whether the company “will run out of time and capital to make the necessary changes”, said Neil Saunders, MD of GlobalData Retail, in an analyst note. “JC Penney is a very weak operator in one of the toughest sectors of a highly competitive retail market in an era of more subdued demand from highly fickle consumers.”

Penney, which reiterated its previously issued financial forecast for the year, expects free cash flow to be positive for fiscal 2019. No details on the forecast were provided due to management transitions, the retailer said.

Analysts expect a loss of 77c a share, compared with a loss of 94c in 2018, according to IBES data from Refinitiv.

Separately, rival Kohl’s slashed its full-year profit forecast on Tuesday after missing estimates for quarterly same-store sales and profit, sending shares down 11%.

One of the oldest names in American retail, JC Penney has struggled to excite customers with its mid-priced clothing and has steadily lost out to fast-fashion brands and online shopping.

Penney has tried to strengthen its apparel business to compete with online retailers such as Amazon and off-price retailers such as TJX Companies. The Texas-based company has shut hundreds of stores over the years and revamped its locations to boost sales and revive profits. It has also identified inventory management as a top priority.

Sales at stores open for at least 12 months fell 5.5% in the first quarter, its sixth straight quarterly drop. Analysts, on average, had expected a 4.21% fall, according to IBES data from Refinitiv.

The company’s net loss nearly doubled to $154m, or 48c a share, in the three months ended May 4. Excluding one-time items, the company lost 46c a share, more than the 38c loss analysts had expected.

Total revenue decreased 4.3% to $2.56bn, in line with the average analyst estimate.

The company said it hired Shawn Gensch as its chief customer officer. Gensch, hailing from Sprouts Farmers Market, will oversee marketing strategies relating to areas including digital, advertising and customer research.

Reuters