Dive Brief:
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J.C. Penney Q3 net sales fell 10.7% year over year to $1.5 billion. Due to declining late fees, cyclical rising losses, and higher program costs, credit card revenues dropped 18.6%, driving total revenue in the quarter down 11.1% to $1.6 billion.
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Merchandise gross profit improved 270 basis points, with margin expansion coming from national and private brands, especially in women's apparel, adult active, footwear and handbags. Digital sales as a percent of total sales expanded 200 basis points. Inventory was down 12%.
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Net loss in the period widened by 76.5% to $30 million, according to financial statements filed this week with the Securities and Exchange Commission. For the nine months ended Oct. 28, EBITDA plunged 55.3% to $181 million.
Dive Insight:
J.C. Penney wasted little time implementing the $1 billion turnaround plan announced in August. In the financial filing this week, the department store said it “formally introduced” the initiative in early September, and that it saw positive results throughout the third quarter.
Customer frequency rose 300 basis points in the period, as average sales rose 11%, and overall store traffic improved by 160 basis points, the company said in its filing.
Its sales decline in the period was due to ongoing macroeconomic challenges, the company said. That extended to its credit card business, though “the underlying credit card portfolio remained healthy,” per the filing.
But it’s much too early to declare victory, and while the turnaround plans are “sensible,” they are also “modest in scope and scale,” which may not be enough given the continued sales and profit slides in Q3, according to GlobalData Managing Director Neil Saunders.
“Many of the steps are about bringing JC Penney up-to-date on retail fundamentals rather than being truly innovative and transformative,” he said by email. “The rise in foot traffic is a green shoot of hope, but the challenge is converting this into regular custom and harnessing it to grow the sales line.”
The turnaround plans may also require more innovation because it’s not clear that the department store format itself is relevant anymore, Saunders also said.
“Unfortunately for JC Penney, it is a weak player in a weak segment of retail, trying to reinvent itself in a relatively weak consumer economy,” he said. “That’s a very uncomfortable position. It has also suffered from years of underinvestment, so turning around the brand will take quite a lot of time and comes with no guarantee of success.”
