JC Penney Embraces New Marketing Plans, Looks Ahead
JC Penney's net loss widened in the first quarter as the department-store chain works to rebound from former CEO Ron Johnson's failed makeover.
The loss expanded to $348 million in the quarter ended May 4 from a deficit of $163 million a year earlier. CEO Myron Ullman, who returned as CEO last month, has been increasing promotions to revive sales and raising cash by borrowing $850 million from the company's credit line while pursuing a $1.75 billion loan. First-quarter sales declined 16% to $2.64 billion.
"The loss was a little worse than I expected, but this story isn't about this quarter, it's about looking out," said Rick Snyder, an analyst for Maxim Group in New York. Mr. Ullman is "taking the right steps. He's trying to get the customer back, and the way to do that is discounting and couponing again," he said.
Mr. Ullman faces plenty of challenges in winning back customers who were alienated after Mr. Johnson removed promotions and swapped in clothing aimed at younger women. The chain released commercials this month saying it learned from its mistakes and thanked customers for giving it another chance.
JC Penney is also returning to its promotional roots. For its Mother's Day event last week, it used the term "doorbusters" to advertise in-store savings of as much as 40%. That kind of discounting was exactly what Mr. Johnson tried to eliminate. Retailers traditionally use doorbusters during the Black Friday shopping weekend. Penney will spend on such marketing events about 20 times a year, Mr. Ullman said.
"We're taking steps to reconnect with our core customer through more effective marketing and messaging," Mr. Ullman said during a conference call with analysts. "The customers will begin to see important changes in the coming months that are aimed at meeting their needs. ... Our most recent marketing better reflects how we intend to reconnect with the customer and encourage her to reconsider JC Penney."
In his first public comments since returning to JC Penney, Mr. Ullman listed things he's changing. Primary among them is bringing back some of the retailer's private-label brands. As many as four brands will return for the fourth quarter. Already it has brought back St. John%u2019s Bay. The chain also will bring back more basic clothing and sizes.
Declines in purchases of private-label goods were largely responsible for sales cratering under Mr. Johnson, Mr. Ullman said. Revenue from cosmetics brand Sephora increased last year but total sales sank 25%.
Mr. Ullman didn't rule out continuing to add what Mr. Johnson called "shops" in the future, although no new ones will be introduced this year, he said. The chain is completing renovations to home sections in about 500 stores in what will likely be the last part of Mr. Johnson's vision to be implemented.
JC Penney also needs to revamp its website to make inventories consistent with what's in the stores. And customer service has to be improved. There's nothing structurally wrong with the company that won't allow it to win back customers and become profitable again, Mr. Ullman said.
--Bloomberg with contributions by Natalie Zmuda