Lowest sales in decades show Penney CEO stumbling

J.C. Penney Chief Executive Officer Ron Johnson is facing mounting pressure after the first year of his turnaround plan resulted in the department-store company's lowest annual sales in more than two decades.

The shares dropped as much as 17 percent in early trading in New York after J.C. Penney said its net loss in the quarter ended Feb. 2 widened to $552 million, or $2.51 a share, from $87 million, or 41 cents, a year earlier. The Plano, Texas-based retailer's annual revenue slid 25 percent to about $13 billion, the lowest since at least 1987.

Johnson, the former Apple retail chief who joined as CEO in November 2011, has retrenched on his everyday low pricing strategy by adding sales, promotions and new price displays in recent months. While Johnson on Wednesday reiterated a plan to install 100 boutiques inside most J.C. Penney stores, he also said he had "made some big mistakes." The retailer's sales trail Gap Inc. and shrank to half of those at Macy's.

"There's really nothing that we've seen like it," Erika Maschmeyer, an analyst at Robert W. Baird & Co. in Chicago, said of the decline. "They don't give much in the way of guidance, which makes it really hard to figure out how to think about this one for 2013, what is the base, and how well are these new promotions working."

Johnson, a former Target executive, later helped Apple co-founder Steve Jobs create the iPod-maker's retail stores, which are unrivaled in sales per square foot. At 52, he was recruited by activist investor Bill Ackman, who's on J.C. Penney's board. Ackman's Pershing Square Capital Management is the company's largest stockholder, with 18 percent of shares outstanding. Johnson has said his transformation of the company, presented to investors last January, would take four years.

Revenue in the fiscal fourth quarter, which includes the main holiday shopping period, slid 28 percent to $3.88 billion as sales at stores open at least a year fell 32 percent. Analysts estimated revenue of $4.08 billion, on average.

Johnson, who seeks to turn the retailer into "America's favorite store," is using new displays showing suggested prices to help customers understand the value of merchandise, adding promotions and resuming some sales around events and holidays such as back-to-school and Valentine's Day. He's sending customers more emails and worked to regain shoppers with offers such as $10 in-store coupons and 30 percent discounts off clearance items. He also has switched up his marketing team.

This spring, the company is improving its home-goods department and introducing clothing from Joe Fresh, Marchesa's Georgina Chapman, and William Rast, a line founded by Justin Timberlake and childhood friend Trace Ayala. It will add close to 20 shops, J.C. Penney said Wednesday.

J.C. Penney's shop-in-shops, installed in fewer than 700 of the retailer's 1,100 stores, are part of an effort to turn the company into what Johnson has called a "specialty department store." Last year he said the shops, including boutiques for Levi Strauss & Co. and Izod products, are producing higher sales per square foot.


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