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With $100 Million In Net Losses, Is It Time For JCPenney To Panic?

  • Written by  Glenn Taylor
With $100 Million In Net Losses, Is It Time For JCPenney To Panic?

JCPenney slashed its full-year outlook for 2018 after the department store experienced significant net losses and poor revenue growth in Q2, again raising questions of whether the company will ever be able to bounce back. The company saw Q2 net losses of $101 million, doubling its loss of $48 million the year prior, with net sales decreasing 7.5%, from $2.99 billion down to $2.76 million, and a comparable sales lift of only 0.3%.

The department store downgraded its 2018 guidance from an initial range of expectedlosses between $0.07 to $0.13 per share all the way down to expected losses between $0.80 to $1.00 per share. Wall Street reacted to the earnings report accordingly, with shares plunging more than 25% after the market opened on Aug. 16. The retailer’s stock price dipped below $2.00 per share for the first time ever.

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JCPenney said in the report that it now had just $182 million in cash left, a more than 40% drop from a year ago. Although the retailer has $2.2 billion in total liquidity, it also reported having nearly $4 billion in long-term debt.

Department store rival Macy’s is slowly engineering a turnaround of its own, in large part with disciplined inventory management. JCPenney has had opposite results on this front and hasn’t figured out how to curb these losses. Inventory buildup at JCPenney is outpacing sales due to prior purchase commitments, the department store’s CFO Jeffrey Davis revealed in a statement. In other words, the company has a lot of unsold goods within its stores and has to rely on markdowns to try and move the merchandise.

“It is not enough simply to buy less,” wrote Neil Saunders, Managing Director of GlobalData Retail in a research note. “JCPenney needs to have a clear view of who it is buying for and then relentlessly focus on producing a well-targeted range that is differentiated and inspiring. In our view, JCPenney is a long way from getting this right. As such, even with modest improvements, the results from fashion are unlikely to improve significantly over the balance of this year.”

In the midst of this chaos, the company still is searching for its next CEO — three months after former chief exec Marvin Ellison departed to head up Lowe’s. There hasn’t been much news about who the next CEO may be, but JCPenney Chairman Ronald Tysoe said that the Board has “met with highly qualified candidates” and that hiring the next chief exec is the brand’s “top priority.”

JCPenney has tried to reinvent itself in recent years via partnerships with companies such as Sephora and Fanatics as part of its pivoted focus to beauty products and stores-within-stores, and will launch expanded baby shops within 500 stores starting Aug. 30. Additionally, since the beginning of 2017 the company has closed 140+ stores and laid off more than 5,000 employees to cut costs. Yet despite these massive changes, nothing appears to have given JCPenney the consistent boost necessary to get the retailer back on its feet.

The company’s top performing divisions during Q2 included children's, jewelry, Sephora, women's apparel and salon products, so there are a handful of categories to work with. But if neither the inventory issues nor the identity crises plaguing the retailer are figured out, JCPenney is going to have a hard time returning to profitability.

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