J.C. Penney profits tumbled last year, as sales edged down

Dive Brief:

J.C. Penney’s Q4 total net sales fell 5.4% to $2.4 billion, as net income rose 18% to $45 million, according to various filings with the Securities and Exchange Commission.
For the full year ended in January 2023, net sales fell 3.4% year over year to $7.6 billion. Net income tumbled 36.3% to $221 million, according to an SEC filing Tuesday.
Ending inventory as of Jan. 28 rose 11.4% to $1.8 billion, per the most recent financial report.

Dive Insight:

J.C. Penney suffered year-on-year declines in 2022 and continues to struggle in many measures since its 2020 bankruptcy. But Simon Property Group CEO David Simon on Tuesday said he believes the department store “has found its mojo.”

Investment has gone into improving stores and creating beauty spaces vacated by Sephora when the beauty specialist left to pursue a partnership with Kohl’s, he said.

“It's getting better brands in the store. We're making the stores look better. It's got growth in beauty,” he said during a conference call Tuesday regarding the mall REIT’s Q1 results. Simon doesn’t provide specifics about J.C. Penney’s earnings, but they are being released to the SEC by a property trust tasked with selling some of its real estate.

Still, those investments are hitting the retailer’s and Simon’s results, he also said. Transaction costs from J.C. Penney's beauty initiative were a drag on the REIT’s funds from operations in Q1, for example, he said.

The retailer is also generating funds for its owners. Simon and Brookfield bought the retailer out of bankruptcy late in 2020, and brand management firm Authentic Brands Group more recently took a 16% stake. Through lease agreements, maintenance fees or other fees, J.C. Penney has paid Simon Property Group $25 million each year for the past two years, and paid Brookfield Asset Management $27 million in 2022 and $28 million in 2021, per Tuesday’s filing.

In addition, J.C. Penney paid Simon $1 million for help with debt refinancing. The retailer also paid Simon, Brookfield and ABG employees a total of $600,000 for serving on its board.

Fees paid by the department store to Authentic Brands Group last year rose 36.6% to $5.6 million. The store has a “good faith efforts” agreement with ABG to purchase its licensed product. So far that has included collections from Forever 21, Sports Illustrated and Marilyn Monroe.