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J. C. Penney Company Inc. (JCP - Analyst Report) once again failed to meet expectations as the company reported consecutive sluggish results, dashing hopes of a recovery, at least for the near term.

The retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishing, posted third-quarter adjusted loss of 93 cents a share compared with earnings of 18 cents in the year-ago quarter. The Zacks Consensus Estimate for the quarter was of a loss of 8 cents.

On a reported basis, including one-time items, quarterly loss came in at 56 cents compared with a loss of 67 cents in the prior-year quarter.

Quarterly sales of $2,927 million plunged 26.6% from the prior-year quarter, and fell short of the Zacks Consensus Estimate of $3,290 million. Internet sales via jcp.com plummeted 37.3% to $214 million in the quarter.

Comparable-store sales declined 26.1% during the quarter compared with a decrease of 1.6% in the prior-year period. We believe that the company needs to be more vocal regarding its pricing mechanism and better align its marketing efforts to attract buyers.

Gross profit slipped 36.1% to $952 million, whereas gross profit margin contracted 490 basis points to 32.5%, signifying lower sales and increased markdowns to clear inventory. The company posted adjusted operating loss of $277 million compared with an operating income of $116 million in the year-ago period.  

Stores Update

During the quarter, the company opened 7 new jcpenney stores, which includes 4 new stores and 3 relocations. Moreover, the company opened 38 Sephora stores inside jcpenney stores, bringing in the total store counts to 386. Brand-wise, the company also opened shops under the jcp, Liz Claiborne, Levi's, The Original Arizona Jean Co. and Izod brands.  

Other Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $525 million, long-term debt of $2,868 million and shareholders’ equity of $3,502 million. The company incurred capital expenditures of $341 million and produced negative free cash flow of $389 million.

J. C. Penney is in a transitory phase, trying to remould itself from the way it had operated before Ron Johnson took charge. In order to uplift itself, J. C. Penney announced an array of measures, which include new pricing strategy, fresh logo, strategic merchandise initiatives, cost reduction and enhancement of customers’ shopping experience, which in turn will augment store sales productivity, and lead to margin expansion and bottom-line growth.

The company aims to reduce costs by over $900 million by the end of fiscal 2012, given the operational efficiencies and sustained efforts to contain costs effectively.

J. C. Penney, which competes with Macy’s Inc. (M - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report), currently operates approximately 1,100 department stores in the United States and Puerto Rico.

Currently, we have a long-term Underperform recommendation on the stock. However, J. C. Penney holds a Zacks #3 Rank that translates into a short-term Hold rating.

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