J.C. Penney Results Raise Concerns About Comeback

PLANO, United States — J.C. Penney Co. shares tumbled the most in six months after first-quarter sales growth trailed analysts' estimates, raising doubts about the state of the department store chain's attempted turnaround.

Comparable-store sales rose 3.4 percent last quarter, the Plano, Texas-based company said Wednesday after the market closed. Analysts projected a gain of 3.5 percent.

While Chief Executive Officer Mike Ullman has stabilized J.C. Penney by reviving private brands, bringing back promotions and ending an expensive renovation program, the retailer has yet to return to consistent profitability. The company posted a loss of 57 cents a share last quarter, excluding some items. Sales growth also has flagged from the year-earlier period.

“They still have a long, difficult process ahead of them,” said Rick Snyder, an analyst at Maxim Group. “It’s an extremely promotional environment, and there’s a lot of competition out there.”

Though J.C. Penney’s losses have surpassed $3 billion since the start of 2012, the retailer has improved margins and boosted sales. Still, debt payments remain a drag on results. The chain borrowed heavily to fund its turnaround and stay afloat, so interest payments have surged.

The shares sank 7.7 percent to $8.04 on Thursday for the biggest drop since Nov. 13. J.C. Penney’s stock has climbed 24 percent this year, bolstered by optimism that its turnaround was on track.

Thursday’s tumble came even as the company boosted the low end of its sales forecast. J.C. Penney said comparable-store sales will climb 4 percent to 5 percent this year, compared with a previous projection of 3 percent to 5 percent.

CEO Change 

In August, Ullman will hand the reins over to Marvin Ellison, a former Home Depot Inc. executive who joined the company in November. At Home Depot, Ellison oversaw an improvement in the chain’s stores centered on enhancing customer service and giving managers more autonomy. He plans to implement a similar strategy at J.C. Penney.

Though J.C. Penney’s same-store sales were light last quarter, total revenue met estimates. They rose 2 percent to $2.86 billion in the period, which ended May 2.

The company said on a conference call that tailored men’s clothing, as well as women’s dresses and handbags from Liz Claiborne, helped drive sales last quarter. J.C. Penney’s Sephora boutiques also contributed to growth. The company plans to begin selling Sephora makeup online later this year.

The retailer’s strategy revolves around adding more space for Sephora and footwear, as well as reviving the home-goods business, which struggled under former CEO Ron Johnson. The company released a catalog dedicated to its home department this year, helping the category’s results. A second one will be released in the fall.

“We are headed in the right direction,” in the home business, Ellison said.

By Matt Townsend; editor: Nick Turner.