JC Penney sees improving sales

ANNE D’INNOCENZIO, AP Business Writers MICHELLE CHAPMAN, AP Business Writers

NEW YORK (AP) — Shares of J.C. Penney Co. got a boost Tuesday after the struggling department store chain said that a key sales barometer improved in September from August and it expects that it will have ample liquidity at year end.

Penney, based in Plano, Texas, said that revenue at stores opened at least a year fell 4 percent in September from a year ago, but that was a 5.8 percentage point improvement from August.

The retailer also said that its online sales continue to strengthen. Online sales rose 25.3 percent last month compared with a year ago. That follows a 10.8 percent gain in August. For the third quarter-to-date, online sales are up 18.6 percent.

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Penney said that it expects to see improving sales trends for the remainder of the year. Revenue at stores open at least a year is a key gauge of a retailer’s health because it excludes the potentially distorting effect of results from stores recently opened or closed.

Its shares rose more than 5 percent in morning trading.

The retailer is trying to recover from a failed turnaround attempt spearheaded by former CEO Ron Johnson. Two weeks ago, the company said it planned to sell up to 96.6 million shares of common stock in a public offering, evidence the chain is looking to shore up its cash reserves ahead of the crucial holiday shopping season.

J.C. Penney Co. said Tuesday it anticipates more than $2 billion in year-end liquidity — a measure of its ready access to cash — after closing on a public stock offering of 84 million shares. The company said that the offering resulted in about $785 million in net proceeds. It also said Tuesday that it remains current in vendor payments

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Penney’s board ousted Johnson in April after 17 months on the job and rehired the previous CEO, Mike Ullman. Under Ullman, Penney is bringing back frequent sales events that had been ditched and is restoring basic merchandise eliminated by Johnson in a bid to attract more affluent, younger shoppers. Under Johnson, the company brought in trendy names like Betsey Johnson and focused on every day prices, eliminating hundreds of sales.

“Over the last six months, we have made significant strides and are now seeing positive signs in many important areas of the business in spite of what continues to be a difficult environment for consumers and retailers in general,” said Ullman in a statement.

Still, Ullman cautioned the company is still in the early stages of the turnaround.

Penney said that the improvement in sales at both its stores and online in September from the prior-year period was due to better inventory levels in key items and having the sizes its shoppers want. However, while traffic improved at its stores not located in malls during September’s last two weeks, Penney said that its mall stores are still contending with weak traffic levels.

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Penney noted that its profit margins continue to be hurt by heavy promotions to get rid of the overhang of inventory from the first two quarters of the year.

Meanwhile, Penney noted that fixing the new home departments has been more challenging than originally planned.

Under Johnson, Penney had overhauled its home areas in about 500 of the 1,100 Penney stores, bringing in such new names as Jonathan Adler and Michael Graves. The home areas were reopened in May. But Penney said in August that the overhauled home areas have been weak. Penney is now working to have a more balanced mix of modern and traditional home furnishings at better price points and making the shopping layout easier for shoppers.

Penney said Tuesday that it has reopened “all but a handful” of its 505 new home departments. But home sales are still weak at its stores.

Also on Tuesday, Sterne Agee analyst Charles Grom downgraded Penney’s rating to “Hold” from “Buy” and cut its price target in half, to $9 from $18. Groms said in a client note that he fears former CEO Johnson may have permanently turned off the retailer’s core customer.

Ullman said Tuesday that reconnecting with customers and getting them into stores is a top priority for the chain.

“We are all dedicated to continuing the momentum underway and restoring J.C. Penney to a leadership position in American retail. It will take time, but we are on the right path with a sound strategy and achievable goals,” he said.

The company is slated to report its fiscal third-quarter results next month.

Its shares rose 40 cents, or 5.2 percent, to $8.11 in morning trading. Shares have lost 82 percent of their value since early February of 2012 when investor enthusiasm was high about Johnson’s turnaround plan. Since the beginning of this year, shares have been down 61 percent.