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posted: 9/20/2012 2:07 PM

J.C. Penney shares plunges on short-term outlook

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  • DAILY HERALDJ.C. Penney has tried to adjust pricing, merchandise and store design, but its efforts have turned off loyal shoppers and failed to draw new ones as it hoped.

      DAILY HERALDJ.C. Penney has tried to adjust pricing, merchandise and store design, but its efforts have turned off loyal shoppers and failed to draw new ones as it hoped.

 
Associated Press

PORTLAND, Ore. -- J.C. Penney & Co.'s stock was one of the market's biggest decliners Thursday after the department store chain told analysts that it expects its financial struggles to continue during the second half of the year.

The retailer has tried to adjust pricing, merchandise and store design, but its efforts have turned off loyal shoppers and failed to draw new ones as it hoped. That led to disastrous financial results this year and forced the company to change its strategy.

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While CEO Ron Johnson emphasized at an analysts' meeting in Dallas on Wednesday that change will take time, some investors weren't willing to make another long-term bet on the retailer.

Shares plunged nearly 11 percent to $25.94 in Thursday afternoon trading.

J.C. Penney's revamp has been painful. The retailer did away with coupons and frequent sales in favor of "everyday low pricing" earlier this year, but the move upset and confused some shoppers. So it brought back some sales and tweaked its advertising in July.

J.C. Penney is still trying to overcome that misstep and slow sales. It expects the financial drag will linger through the year but thinks new store designs will help its business in the long run.

The Plano, Texas, company unveiled a new store prototype Wednesday that got great reviews. It features an array of mini-boutiques with brand names such as Disney, Liz Claiborne and Carter's that build on its earlier success with brands like Levi's and Sephora that put stores within its stores to draw new shoppers. The company also will widen its aisles and introduce new self-checkout options to improve the shopping experience. And it is adding coffee, candy and gelato stands to keep shoppers hanging around.

J.C. Penney hopes the stores will help move its image from dowdy and dated to upscale and trendy, without losing its value edge. Some industry experts remain skeptical.

"We want to believe this can work, and longer term, we think it will. But this has been, and will likely continue to be a roller coaster ride with many ups and downs," Nomura Equity Research analyst Paul Lejuez said in a research note, in which he kept a "Neutral" rating on the company's shares.

The analyst said the company's ideas are impressive and transformative. However, he remains concerned about when sales will turn around and the execution risks that come along with some of the big changes. He also questioned the company's plans to only improve 700 of its 1,100 stores.

A J.C. Penney representative could not immediately be reached for comment.

J.C. Penney's stock has run a jagged line over the past year as investors hoped for the best only to be disappointed by the results. Its shares fell sharply from a yearlong high of $43.13 in February to $19.25 in July. Shares were on their way back up until Thursday.

The day's stock movement may be a knee-jerk reaction though, as many analysts still saw a bright future ahead for one of the nation's older and more established retailers. The company and its forerunners have been around since 1902.

Citi analyst Deborah Weinswig said she is fired up after the sneak peak at the new store and reiterated a "Buy" rating on its shares.

"(J.C. Penney) is clearly not out of ammo, as it showcased a dazzling display of technology, outgunning the competition," Weinswig wrote in a note. "We believe that the new (J.C. Penney) will offer a shopping experience unlike any other in apparel retailing,"

Much of investor's hope is pinned on CEO Johnson, who was hired late last year. The former Apple executive, credited as the mastermind behind Apple's retail stores and Target's cheap-chic strategy, led the failed pricing effort, but many hope he still has some magic left.

The company has big financial issues to overcome. Earlier this month, it posted a loss of $147 million in its second quarter, reversing a year-earlier profit, and revenue fell 23 percent as its customer count fell by 12 percent.

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