J.C. Penney's Weak Online Sales

Retail

Published: August 15, 2014 6:28 am

Barely mentioned in the J.C. Penney (NYSE: JCP) earnings report was the tiny amount of its online sales for the quarter. Same-store sales may have improved, but the e-commerce revenue figure betrays a weakness that will eventually drive the company’s prospects back down after what will be a short-lived recovery.

For the quarter, J.C. Penney’s revenue rose 5.1% to $2.8 billion, on a same-store sales lift of 6%. But the retailer still lost money. Its net loss was $172 million, an improvement from a loss of $586 million in the same quarter a year ago.

Penney bragged about a 16.7% growth in e-commerce revenue, which hit only $249 million. By way of contrast, very modest-sized online discount retailer Overstock (NASDAQ: OSTK) had revenue of $333 million last quarter, an improvement of 13%. Overstock has neither J.C. Penney’s marketing budget, nor the broad array of products Penney sells online.

Amazon.com (NASDAQ: AMZN) has been the gold standard of online sales revenue for years. In the most recent quarter, its revenue rose 23% to $19.3 billion. So, it is growing at a faster rate than Penney’s online sales even though its revenue dwarfs that of the struggling retailer.

Penney’s Internet prospects are not only dimmed by Amazon. Wal-Mart Stores Inc. (NYSE: WMT), Target Corporation (NYSE: TGT), Best Buy Co Inc. (NASDAQ: BBY), and Macy’s (NYSE: M) are among the brick-and-mortar retailers that have expanded their e-commerce operations and are desperate for them to be successful. Penney’s Internet operations have to push through an army of competition. As large retailers press for even a modest part of Amazon.com’s revenue, the odds are stacked against a company of Penney’s size.

Same-store sales improvements will help Penney, although it is worth remembering it is digging out of a hole of 20% fall-offs in revenue several quarters two years ago. And the model for making money in the retail industry has shifted violently away from foot traffic to hits on a retailer’s website. At $249 million in online revenue, Penney has not even begun this transformation.

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