Penney to close 33 stores, cut 2,000 jobs to stem losses

Reuters

By Phil Wahba

NEW YORK, Jan 15 (Reuters) - J.C. Penney Co Inc said on Wednesday it would close 33 stores and cut 2,000 jobs as part of its efforts to return to profitability.

Chief Executive Myron Ullman said in a statement the action "addresses a strategic priority to improve the profitability of our stores."

Penney is the second major U.S. retailer in as many weeks to announce layoffs. Last week, Macy's Inc said it was eliminating 2,500 jobs. Those cuts will be offset over time as the retailer plans to add positions to its online business, leaving overall staffing levels unchanged at around 175,000.

Sears Canada Inc said on Wednesday it would cut this year more than 1,600 jobs, or more than 7 percent of its workforce, as it reorganizes and outsources some of its business.

Penney, which operates about 1,100 mid-market department stores in the United States, is trying to stanch enormous losses and win back shoppers after a 25 percent drop in sales in fiscal 2012 during a failed attempt to go upmarket.

It has returned to the discounts that were long its hallmark and brought back popular in-house brands.

Sales started ticking up in the autumn after nearly two years of monthly sales drops but remain well below fiscal 2011 levels. A press release last week with scant details on its December sales results raised concerns that the turnaround stalled during the key holiday season.

"It is not surprising to see them close stores given their financial situation," said Maxim Group analyst Rick Snyder.

Analysts expect Penney to report a 70-cent per share loss for the holiday quarter, according to Thomson Reuters I/B/E/S.

The company would not say whether further closings were planned, but Ullman told Reuters in an exclusive interview last month that Penney did not intend to significantly pare the size of its store fleet.

"There's no solution in taking a big chunk of stores and lopping them off - that doesn't solve anybody's issue," Ullman said in the interview.

A Penney spokeswoman on Wednesday said two of the 33 stores were locations owned by the company, with the remainder being leased stores. Penney leases its stores at over half of its mall locations, according to an analysis last year by Green Street Advisors.

The closings, expected to be completed by May, will generate cost savings of $65 million per year, beginning in 2014. Penney expects estimated pretax charges of about $26 million in the current quarter and another $17 million spread across future periods.

Stores closing include five in Wisconsin, where archrival Kohl's Corp is dominant, three in Pennsylvania, and two in Florida. No stores in Penney's home state of Texas are slated to close.

The struggling department store chain had 116,000 employees as of Feb. 2, 2013. That was about 40,000 fewer than a year earlier as the company tried to cope with lower sales.

Best Buy Co Inc and Sears Holdings Corp are two retailers that in recent years announced significant store closings. Last week Macy's Inc said it was closing five stores, but also opening eight new locations.

Shares slipped 1.6 percent at $6.90 in after-hours trading. They have fallen 70 percent since hitting a 52-week high last February.

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