J.C. Penney Co. cut its sales outlook for the year after reporting a surprising decline in a key sales figure for the third quarter as it wrestled with sluggish clothing sales.
Revenue at stores opened at least a year fell 0.8 percent, below the 2.2 percent increase that analysts had expected.
The report is a setback for Penney, whose business has been volatile, bouncing back in the summer after a tough start to the year.
Nonetheless, shares rose in trading Friday after dropping as much as 10 percent in pre-market dealings.
Penney is trying to recover from an unsuccessful reinvention plan under former CEO Ron Johnson that sent sales and profits into a free fall in 2012 and 2013. Business stabilized under Mike Ullman, who took the helm in 2013 after Johnson was pushed out. Under Marvin Ellison, who has been CEO since 2015, Penney is looking for new ways to increase sales while playing catch-up in e-commerce.
Like other department stores, J.C. Penney is trying to adjust to changing shopping patterns. Consumers are shifting their spending away from clothing and toward experiences like beauty treatments or toward furnishing their home. And when they do pick up clothing, it's more often at off-price stores or online as Amazon moves more into apparel.
Given the environment, Penney wants to be less dependent on clothing and is focusing its efforts on its home area and rolling out major appliances in it stores. It now has major appliances in 500 of its stores. It has expanded the Sephora beauty shops and is updating its beauty salons, now branded Salon by InStyle. It is also beefing up its store label brands such as St. John's Bay.
The company is aiming to be more competitive in the digital arena. Penney is arming its store associates with mobile devices to help check out online shoppers who are picking up orders in the store.
In a statement, Ellison said sales accelerated in the latter part of the third quarter and he's optimistic about a strong Christmas shopping season.
"We are excited about the initiatives we have in place to drive incremental growth during the holiday season with our increased appliance penetration, new Sephora locations, free same-day pickup for online orders, a strong cadence of promotional events and our new lowest price guarantee," said Ellison.
Ellison said unseasonably warm weather hurt the clothing business. Unlike other department stores, Penney is evenly distributed across the country and was especially hurt in the South. Ellison also said the company is shifting to more casual apparel to reflect changing preferences.
As for the distraction from the presidential election, he said it was hard to quantify. But he added, "From an economic standpoint, they are in really good shape."
Penney reported a loss of $67 million in its fiscal third quarter, which had narrowed from a loss of $115 million in the year-ago period.
On a per-share basis, the Plano, Texas-based company said it had a loss of 22 cents. Losses, adjusted for restructuring costs, were 21 cents per share.
The results beat Wall Street expectations. The average estimate of 13 analysts surveyed by Zacks Investment Research was for a loss of 22 cents per share.
Penney posted revenue of $2.86 billion in the period, which missed Wall Street forecasts. Eight analysts surveyed by Zacks expected $2.94 billion.
The company now expects to see an increase of 1 to 2 percent for the key sales measure, down from its original forecast of 3 percent to 4 percent it announced in the summer.
J.C. Penney Co. shares rose 35 cents, or nearly 4 percent, to $9.16 in trading Friday. Shares have traded as low as $6 and as high as $11.99 over the past year.
Business on 11/12/2016