J.C. Penney Co. just about broke even in its fiscal second quarter and warned it could post a loss in the current quarter, but the retailer raised its profit forecast for the full year on an improved economic outlook and stabilizing sales."We are more confident coming into the third quarter than we were in the second quarter," said Chief Executive Myron E. Ullman III in a Friday conference call. Still, he added that "negative consumer sentiment will continue to be a factor" hindering spending for the rest of the year.
For the quarter ended Aug. 2, the Plano, Texas, company posted a loss of $1 million, or zero cents a share, compared with net income of $117 million, or 52 cents a share, a year earlier. The latest results included a pension expense of $83 million. Sales fell 7.9% to $3.94 billion, with same-store sales down 9.5%.
For the third quarter, the company said it expects results ranging from a profit of five cents a share to a loss of five cents a share, much lower than analysts' expectations of a 14-cent profit. The reasons for the disparity include higher marketing expenses, minimum-wage increases and the costs of opening new stores, the company said.
In response to the third-quarter forecast, Penney's shares fell $2.11, or 6.3%, to $31.23 in 4 p.m. composite trading on the New York Stock Exchange.For the full year, Penney said it expects earnings in a range of 75 to 90 cents a share, up from earlier guidance of 50 to 65 cents a share, revising its forecast on falling sourcing costs, leaner inventories and improved sales trends for the back-to-school season.
"Their inventory position hasn't been leaner in two years," said Bob Drbul, an analyst at Barclays Capital.
Penney reduced inventories by 12% in the second quarter to get supply back in line with demand and reduce clearance sales. Such moves, coupled with the company's high penetration of private-label merchandise, helped boost gross profit margins by a full percentage point, to 38.5% of sales.
The company said that kids shoes, chess sets and women's plumeria jewelry sold well in the quarter, while children's apparel was the weakest category.
Mr. Ullman referred to the company's Sephora cosmetics boutiques, which have helped Penney attract a younger, more affluent consumer, as a "game changer." The company opened 38 Sephora locations within Penney stores in the second quarter and expects to have 155 of them by the end of the year.
Penney's said it has begun searching for a successor to President and Chief Merchandising Officer Ken Hicks. The new executive's initial title would be president, a person familiar with the matter said. Mr. Hicks, who left the company last month to become chief executive of Foot Locker Inc., was widely considered to be the heir apparent to Mr. Ullman.
Penney's directors are seeking a candidate capable of someday succeeding Mr. Ullman as chief executive and are in no rush to finish the search, according to two people familiar with the situation. On the conference call, Mr. Ullman said the company was looking at both internal and external candidates.
