J.C. Penney Has Another Train Wreck of a Quarter


Stop us if you've heard this one before: J.C. Penney (JCP) had another dismal quarter, but Ron Johnson is optimistic.

Same-store sales for the beleaguered retailer fell 31.7% in the fourth quarter of 2012, even worse than analyst projections of a 28% decline. Online sales struggled even more, with sales at jcpenney.com falling 34.4% versus the fourth quarter of 2011.

Total sales for the quarter were down 28% to $3.9 billion, despite the fact that the fourth quarter of 2012 was a week longer than in 2011. In all, the retailer posted a $985 million net loss for the year.

That's a loss of nearly a billion dollars in Ron Johnson's first full year at the helm after arriving from Apple (AAPL), and he acknowledged that sales for the year were below expectations. Still, Johnson was characteristically optimistic about the year to come.

JC Penney
JC Penney

"Looking ahead, we are energized by our shop roll out plans for 2013 and the exciting work our teams are undertaking to transform the store," said Johnson in the earnings release. "Combining a new marketing campaign focused on style and value, incredible new brands and updated merchandise, with continued enhancements to the customer experience both in our stores and on jcp.com, we are working towards reconnecting with our core customer while attracting new customers to J.C. Penney."

Still, the retailer faces mounting challenges in the new year, not the least of which is convincing customers to come back after Johnson made an about-face by resuming sales last month. It's also embroiled in a public courtroom battle with Macy's over a deal with Martha Stewart, and it's burning through cash at a prodigious rate.

"It remains very hard to warm to J.C. Penney as a first half 2013 turnaround story given the cash being eaten alive by the turnaround," said Brian Sozzi of NBG Productions in a analyst note immediately following the release.

[UPDATE: In a live webcast earnings call, Johnson acknowledged that the "fair and square pricing" strategy was a major misstep.

"We also made some big mistakes and I take personal responsibility," he said. "I had a personal conviction to deliver everyday value with truth on the price tag."

That, he conceded, represented a misunderstanding of J.C. Penney's target customer.

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"We learned [our customer] loves a sale, at times she loves a coupon, and she always wants a reference price," he said. "She needs to feel she added value to her family through savings she got from being a savvy shopper. So we've brought back sales and we've brought back coupons -- though we still call them 'gifts.'"

Finally, Johnson made what sounded like a reference to a New York Post report alleging that the retailer was pressuring vendors to make up suggested retail prices to make its own prices seem lower.

"We don't need to artificially mark up prices to create illusion of savings," he said.]

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.

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