Can Fashion Help JC Penney Beat Its Losses?

Turnarounds are not easy work — just ask the team at JC Penney.

As of the end of Q2, the numbers aren’t quite what the long-suffering retail chain was hoping to see. Same-store sales and earnings both clocked in under analyst estimates, and net losses grew to $62 million, or 20 cents per share, from the $56 million, or 18 cents per share, reported in the same time frame last year.

Losses were expected, albeit lower ones. JC Penney was projected to lose 5 cents per share, adjusting for one-time losses, but reported a loss of 9 cents per share. According to the department store chain, closing and inventory liquidation of 129 stores during Q2 took a bite out of both earnings and gross margins.

“These events were isolated to the second quarter,” said Marvin Ellison, chairman and CEO of J.C. Penney Company, Inc. “As such, we are reaffirming our EPS guidance for the year, and remain confident in our ability to further strengthen our balance sheet, while driving sustainable growth and long-term profitability for JC Penney. To that end, we are pleased that we are off to a strong start in August for the all-important back-to-school season. We are excited by this momentum and expect to deliver improved results in the back half of the year.”

Revenue was on the incline, up 1.5 percent to $2.96 billion, beating analyst estimates of $2.84 billion. Same-store sales, however, were down 1.3 percent, a bit worse than the forecasted 1.2 percent.

But, not all losses were created equal. Home goods, fine jewelry, footwear, handbags, Sephora cosmetics and salon services all performed strongly, as did store locations in the American Southwest and Southeast. Ellison noted on the quarterly call that the chain is hoping to boost its sagging performance in women’s apparel with a better assortment and greater focus on contemporary styling.

Neil Saunders, managing director of data and analysis provider GlobalData, noted the firm is moving in the right direction, even if the quarterly numbers don’t reflect.

“Strategically, this is a year of advancement: Longstanding problems are being remedied, the balance sheet is being strengthened and the business is on a more stable footing,” Saunders said. “This is the platform on which growth can be built, but that growth won’t come through until 2018 at the earliest.”