JC Penney Shines at the Oscars, but Q4 Performance Disappoints

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J.C. Penney (NYSE: JCP) captivated the hearts of American consumers during the recent Oscars through its “Yours Truly” advertising campaign. Alas, its earnings for the fourth quarter of 2012 were more of a flop than an award-winning smash.

Gone with the brand
J.C. Penney incurred a net loss of $552 million or $2.51 per share during the fourth quarter. Excluding restructuring, management, and other one-time charges, it lost $427 million, or $1.95 per share. Its total revenue declined by 28.4% to $3.88 billion. Its comparable store sales declined by 31.7%, while sales through its website jcp.com also fell by 34.4% year over year.

J.C. Penney’s net loss for fiscal 2012 was $985 million, or $4.49 per share. Excluding charges related to the implementation of the company’s new strategy and non-cash pension plans, its adjusted net loss was $766 million, or $3.49 per share.

The financial performance of the century-old retailer proved weaker than expected. CEO Ron Johnson admitted his mistakes last year, having failed to understand that customers need a reference price, and love sales and coupons. According to him, J.C. Penney will offer sales and coupons this year. In addition, the company is selling new products from leading designers and brands.

According to Johnson, since the debut of its advertisement during the Oscars telecast, visitors to Joe Fresh on J.C. Penney's online shop are seven times more than those visiting previous site leader Liz Claiborne. Johnson is confident that the company's new strategy will deliver long-term growth and profitability.

Bill Ackman of Pershing Square Capital Management stated during the Harbor Investment Conference that Johnson accomplished a lot over past 14 months. He is confident that J.C. Penney’s sales will stabilize.  He emphasized that Johnson did a very good job in restructuring costs and renovating stores, although he made a mistake in completely withdrawing its promotions.

In an interview with CNBC, Ackman indicated that Johnson has three years to turnaround J.C. Penney. If the company is still struggling after three years, “he’s probably the wrong guy,” said Ackman. Pershing Square Capital owns a 17.8% stake in JC Penney.

An advertisement to remember
During the Oscars, JC Penney’s “Yours Truly” ad definitely grabbed the attention of consumers and stirred their curiosity about its new line of signature brands & pricing. As a result, many immediately checked out its online store.

With its newly renovated stores featuring leading designers, brands, sales promotions, and coupons, JC Penney is ready to compete against Macy’s (NYSE: M) and Kohl’s (NYSE: KSS).

Kohl’s reported that its total sales in December 2012 climbed by 4%, while its comparable-store sales increased by 3.4% year over year. However, the company said its December sales were lower than expected. As a result, Kohl's lowered its Q4 and full-year guidance significantly.

Macy’s reported better-than-expected earnings for the fourth quarter of 2012. The company said it earned $2.05 per share, excluding pre-tax expenses, on revenue of $9.35 billion. Its financial results exceeded analysts' consensus estimate of $1.99 earnings per share and $9.3 billion revenue. The company said its revenue for FY 2013 to increase by a 3.5% and raised its full-year guidance to be around $3.90 to $3.95 per share.

At present, JC Penney and Macy’s have an ongoing legal battle regarding a partnership agreement with Martha Stewart Living Omnimedia (NYSE: MSO). The two companies are fighting for the right to sell Martha Stewart’s brands exclusively. During its Q4 earnings call, Martha Stewart Living Omnimedia emphasized that it will launch its brand at J.C. Penney stores as scheduled in May, despite the lawsuit. Martha Stewart’s brands will serve as centerpiece of J.C. Penney’s newly renovated home improvement shop.

JCP is implementing strategies to turnaround and it is committed to stay in business for 100 years more. With not much farther to fall, J.C. Penney has no choice but to rise again -- or get escorted off the stage.


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