J.C. Penney on Tuesday said its same-store sales for the holiday period declined and that it plans to close three stores this spring as part of an ongoing evaluation of its store portfolio.
HOLIDAY SALES: J.C. Penney said its comparable store sales for the nine-week period ending January 5 fell 3.5% on a shifted basis, with sales falling 5.4% on an "unshifted" basis. The retailer said it still expects to "generate positive free cash flow in fiscal 2018, reduce inventory in excess of $225M, or 8%, and expects to end the year with liquidity in excess of $2B."
Additionally, the retailer said it will close three stores this spring as part of an ongoing evaluation of its store portfolio occurring over the next few months, which includes assessing locations that may not meet required financial targets or represent a market opportunity to capitalize on a beneficial real estate asset. It did not specify which stores it plans to close, but said it will share an update on February 28 when it reports fourth quarter earnings.
WHAT'S NOTABLE: Last year, J.C. Penney reduced payroll, froze overtime and took other major cost cutting steps as it faced "an expense challenge." J.C. Penney management has said the company would continue to be "aggressive" on cost cutting. In August, J.C. Penney said it plans to cut $250M in inventory by 2019. Mall-based retailers, including J.C. Penney, have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M, as well as online shopping at Amazon (AMZN). J.C. Penney has struggled more than some of its peers, including Nordstrom (JWN) and Macy's (M), and in August, again cut its outlook for fiscal 2018 as it continued to deal with too much inventory. The retailer later withdrew its FY18 guidance after it announced both a new CEO and an interim CFO to "allow the ability to effectively assess and address current and go-forward execution of the business." New CEO Jill Soltau, the former president and CEO of Joann Stores, said on J.C. Penney's Q3 earnings conference call in November that restoring the company to profitable growth will be a "lengthy" process.
'AMAZON EFFECT': Meanwhile, Amazon said in late December that it had a "record-breaking" holiday season with more items ordered worldwide than ever before. Amazon customers shopped at record levels from a wide selection of products across every department, it said. "This season was our best yet, and we look forward to continuing to bring our customers what they want, in ways most convenient for them in 2019. We are thrilled that in the U.S. alone, more than one billion items shipped for free this holiday with Prime," said Jeff Wilke, CEO Worldwide Consumer at Amazon, said at the time.
ANALYST COMMENTARY: Credit Suisse analyst Michael Binetti maintained an Underperform rating on J.C. Penney, telling investors in a research note that while his market share capture analyses suggest the retailer will see the biggest same-store sales lift from Sears (SHLD) closings due to close proximity, any share gains are likely to be overshadowed by an ongoing long-term cycle of store closures, overhead reductions, scale benefit losses and leverage constraints to growth investing.
PRICE ACTION: In morning trading, shares of J.C. Penney are up 4.1% to $1.26.