Retail

JC Penney Is Finally Doomed

Douglas A. McIntyre

Published: November 16, 2019 7:24 am

Last Updated: January 30, 2020 1:04 pm

J.C. Penney Co. Inc. (NYSE: JCP) has released earnings, and its stock rose by a small amount. Some analysts said the retailer did not do as poorly as expected. The observation did not mean very much. J.C. Penney said same-store sales for the year would be down 7% to 8% for its fiscal year, which is nothing short of a catastrophe for a company that has posted plunging sales for years.

J.C. Penney shares are down 84% over the past five years and have traded below $1 recently. Once among the nation’s largest retailers, it has no capacity to compete with powerful retail leaders like Walmart, Target and even troubled Macy’s. J.C. Penney’s store count is only 850 now, after shuttering locations for over half a decade. By contrast, Walmart has over 5,000 in the U.S.

J.C. Penney’s revenue is also crashing. It fell 8.5% last quarter to $2.5 billion for the quarter. Its net loss did improve to $93 million from $151 million. But a loss is a loss nevertheless. For comparison’s sake, Walmart’s revenue last quarter was $83.2 billion, up 3.2%.

The fictional view about J.C. Penney’s possible success is that its results are not getting worse faster. Jill Soltau, chief executive officer of J.C. Penney, said, when earnings were released, “Going forward, I am confident that delivering our strategy, coupled with our ongoing discipline and commitment to improving the foundational elements of our business, will return JCPenney to its rightful place in the retail industry.” The “rightful place” was usurped by more powerful retailers long ago. In a retail world where store count counts along with e-commerce muscle, J.C. Penney has no path back.

Commenting on the numbers, Neil Saunders, managing director at GlobalData, said:

However, the question is whether it has the resource and energy to complete its journey. There is a slim chance it can make it if it manages to improve underlying trading by enough to stabilize losses and undertakes a gradual brand reinvention, using online to bolster sales. However, sadly, in our view, the odds are firmly stacked against it.

J.C. Penney is about to enter a holiday season that may be its last before what will be a financial reorganization that will chop store count more and push many of its 95,000 employees out of jobs. Holidays mean discounts, to pull people through the door of retailers. Granted, those people often buy items that are profitable while on the same visit, either to a store or an e-commerce site. J.C. Penney has very little resources to be in the loss leader business. Its balance sheet is too badly damaged. However, it is already offering 50% or more off of some items.

Despite a tiny bit of optimism when J.C. Penney announced its earnings, the industry has seen this kind of show again. It almost always ends badly.

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