JC Penney Trips, Turnaround Far Cry

J. C. Penney Company Inc. ( JCP - Analyst Report ) once again failed to meet expectations as the company’s much touted turnaround plan failed to deliver the desired results. The company’s spree of losses continued during the fourth quarter of fiscal 2012, dashing all hopes of recovery, at least for the near term.

The company posted adjusted quarterly loss of $1.95 per share compared with earnings of 21 cents in the comparable year-ago quarter. The Zacks Consensus Estimate for the quarter was a loss of 19 cents.

Including one-time items, the quarterly loss came in at $2.51, wider than the loss of 41 cents in the prior-year quarter.

The company’s quarterly sales of $3,884 million plunged 28.4% year over year and fell significantly short of the Zacks Consensus Estimate of $4,164 million. Internet sales via jcp.com waned 34.4% to $315 million in the quarter. Comparable-store sales decreased 31.7% during the quarter compared with a decline of 1.8% in the prior-year period.

Gross profit plummeted 43.6% to $924 million, whereas gross profit margin contracted 640 basis points to 23.8%, signifying lower sales and increased markdowns to clear inventory.

Turnaround Efforts Flounder

J. C. Penney, which is in a transitory phase, is scrambling to remould itself from the way it had operated before Ron Johnson took charge. The company 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, thus inducing margin expansion and bottom-line growth.

However, the restructuring initiatives are failing as the company is showing no signs of improvements and lagging its peers, Macy’s Inc. ( M - Analyst Report ) , Target Corporation ( TGT - Analyst Report ) and Kohl’s Corporation ( KSS - Analyst Report ) in terms of performance.

We believe that the company needs to be more vocal regarding its pricing mechanism and better align its marketing efforts to attract buyers.

Stores Update

For spring 2013, J. C. Penney intends to expand the home products section by opening approximately 20 shops in 505 outlets. Moreover, the company will add 700 Joe Fresh apparel shops on Mar 15, 2013. For fiscal 2013, the company has 60 Sephora inside jcpenney store openings on its cards, taking the total store count to 446.

Other Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $930 million, long-term debt of $2,868 million and shareholders’ equity of $3,171 million. The company incurred capital expenditures of $230 million and produced free cash flow of $415 million during the quarter.

Currently, J. C. Penney holds a Zacks Rank #3 (Hold), which could witness a downgrade in the near term.