J.C. Penney's Net Income Drops 50%

American Living Store Brand Off to an Uncertain Start

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NEW YORK (AdAge.com) -- You know it's a bad retail environment when a 50% decrease in net income beats analyst expectations.
J.C. Penney still expects the American Living product platform it introduced in February to become a billion-dollar-plus business despite more than 200 recent price cuts in the line.
J.C. Penney still expects the American Living product platform it introduced in February to become a billion-dollar-plus business despite more than 200 recent price cuts in the line.

But that's what happened at J.C. Penney, which halved its net income to $120 million in the first quarter, a period when sales fell 5.1% to $4.1 billion, and sales at stores open at least a year skittered 7.4%.

Hoping to live large
All of which raises questions about how well American Living, its ambitious product platform introduced in February, is doing. Penney's plan is for the collection, which launched in about 600 stores, in catalogs and online in February, to become a billion-dollar brand.

"Obviously the environment is much weaker now than when we announced the launch of American Living," Ken Hicks, president and chief merchandising officer, said in a quarterly conference call today. "Within that context, we are pleased with the customer reaction we've seen with the brand's first season and with the solid response across categories and price points."

Penney is now touting its biggest sale of the season, with 25% to 60% off throughout the store -- including more than 200 price cuts in the American Living line across the men's, women's, children's and home categories on the retailer's website.

"American Living has always participated in J.C. Penney's promotional cadence," a spokeswoman for the retailer said. "Its promotional cadence is actually less promotional than the rest of the store."

Sephora, Penney's other premium-priced brand, has no price promotions linked to it.

Positive response
Ultimately, the company still expects American Living to become a billion-dollar-plus business, which would translate into more than 5% of the retailer's sales. Mr. Hicks said customers are responding to the style and fit of the product, adding that they understand the value proposition, even though it is priced higher than other Penney labels like A.N.A, Arizona and St. John's Bay.

"Both Sephora and American Living are merchandise concepts that anchor our assortments at the best price point and help attract the younger, more affluent customer while satisfying existing customer demand," Mr. Hicks said. "Since the initial launch of Sephora, we've seen continuing growth and acceptance of the concept, and we expect American Living to follow the same path."

Mr. Hicks warned that the second quarter is also likely to be challenging "due to a continuation of a weak sales environment and a more promotional competitive landscape."
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