Dive Brief:

• J.C. Penney fourth-quarter net sales fell 7.7% year-over-year to $3.4 billion, with comparable sales down 7%. (Excluding appliances, which Penney exited last year, comps were down less, by 4.7%.)
• Operating income fell nearly 20% to $102 million, and net income fell 64% to $27 million, per a press release. Penney beat the FactSet consensus estimate on earnings, sales and comps, sending its share prices up 3% in premarket trading, according to MarketWatch.
• The company announced that it is closing "at least six store locations in fiscal 2020." The company has approximately 850 stores currently. 

Dive Insight:

J.C. Penney's Q4 was not as bad as analysts feared, but it it was still marked by significant sales declines and widening losses. 

For the fiscal year, Penney's sales fell 8.1% to $10.7 billion as comps fell 7.7% (or 5.6% excluding appliances). Operating loss widened by more than 33% to $8 million, net loss widened by 5% to $268 million, and adjusted EBITDA grew 2.6%. ​

CEO Jill Soltau has been careful to note that she and her team are aware of the challenge before them and the sense of urgency needed. On a call with analysts she projected optimism, saying "we are on the right track" while also noting "we still have more work to do."

One of the main areas where the retailer has been trying to improve is apparel, especially women's apparel. Soltau pointed to positive gains in denim, both its private label ("a.n.a") and Levis. "Many brands" had positive comps, Soltau added, and she noted that activewear — another former sore point where Penney has tried to improve — comped positively. 

Meanwhile the company is testing out a new concept store and, based on early results, is rolling out a store pick-up program to 50 stores in the next week.​

As the company revamped its merchandising approach, in an effort to reduce discounting, inventory fell 11.1% year over year. For the year ahead, CFO Bill Wafford said the company expects markdowns to return to "more traditional" levels.

Wafford also said the company expects positive free cashflow and adjusted EBITDA to increase 5% to 10%. The company ended the year with $1.8 billion in liquidity. All of those things are crucial as Penney tries to rein in its losses and fund its turnaround, and stay out of bankruptcy court. 

Moody's lead Penney analyst Christina Boni said in emailed comments that the retailer's results show that it "continues to stabilize its operations despite the challenges facing the department store sector." She also described Penney's inventory management as "disciplined" and noted the year-over-year decline in inventory helped generate a 200 basis point gross margin improvement in Q4. 

But the continued sales declines and profit losses are still sources of pain. "There's no nice way of saying it: JC Penney was one of the losers over the holidays," said Neil Saunders, managing director of GlobalData Retail, in emailed comments. 

"Although we recognize the work Jill Soltau and her team are undertaking to improve JC Penney's position and attractiveness, the reality on the ground is that most stores deliver an experience that is well below par," Saunders added. "They are messy, crowded with bland merchandise, and lack any energy or inspiration. It is, therefore, hardly surprising that many shoppers are abandoning them and taking their custom elsewhere."