Penney's 2Q results to offer clues on any rebound

J.C. Penney's 2Q results to offer clue on whether business is stabilizing

Associated Press

NEW YORK (AP) -- J.C. Penney Co. is expected to report second-quarter earnings results before the market opens Tuesday that will show if business is starting to stabilize under CEO Mike Ullman, who returned in April.

WHAT TO WATCH FOR: J.C. Penney is trying to recover from more than a year of disastrous results after a transformation plan spearheaded by its former CEO Ron Johnson backfired. The board rehired Ullman and ousted Johnson in April, 17 months into Johnson's tenure.

Under Ullman, Penney is bringing back more frequent sales and basic merchandise eliminated by Johnson in an attempt to attract more affluent and younger customers.

Analysts will want to know whether the moves to stabilize sales are working and whether Penney is seeing its customers come back. Investors will also dissect executives' comments on the health of its middle-income shoppers after several retailers including Wal-Mart Stores Inc. and Macy's Inc. issued bleak outlooks last week, citing a still-uncertain economic recovery.

Penney's results come a week after its largest shareholder, William Ackman, resigned from the company's board of directors as part of a deal to resolve an unusually public battle between the activist investor and the department store chain. Ackman's Pershing Square Capital Management has a 17.7 percent stake, or 39 million shares, in Penney.

On Friday, Penney made public a deal that sets terms for allowing Ackman to unload his stake in the company in an orderly manner.

The deal gives Penney some control over the timing of any sales, but it could serve as an overhang for the stock that has lost nearly 70 percent of its value since February 2012 when investor optimism for Johnson's transformation plan was high. That includes losing 36 percent of its value so far this year. The stock is trading at about $13 per share.

Ackman, who joined Penney's board in February 2011, was the one who pushed the board to hire Johnson, a mastermind of Apple Inc.'s successful stores. The hope was Johnson could inject new energy into a tired company.

Instead, Penney amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2 in the first year of the failed transformation strategy. Sales declines and losses continued into the first quarter as Johnson's legacy cast a shadow on the results.

Even the home area, which was Johnson's project and features a slew of trendy new names like Jonathan Adler and Michael Graves, has failed to resonate with shoppers, analysts say. Penney was counting on the new home area, launched last spring, to reinvigorate customer traffic, but analysts believe some of the products like $3,000 couches are just too pricey for its shoppers. Analysts will be looking to see how the home business fared.

There are also increasing concerns about Penney's liquidity. Earlier this month the retailer said it expects to finish the second quarter with about $1.5 billion in cash on its balance sheet. That was less than some analysts expected.

For the second quarter, Penney is expected to report an 8.3 percent in revenue at stores open at least a year — a key measure of a retailer's health. That compares with a 21.7 percent drop in the year-ago period. Wall Street analysts will want to know when Ullman believes Penney will start to see sales gains.

WHY IT MATTERS: Penney is a major department store chain and sells a variety of discretionary items at moderate prices. That makes it a barometer of middle-income shoppers' willingness to spend.

WHAT'S EXPECTED: Analysts expect a loss of $1.07 per share on revenue of $2.77 billion.

LAST YEAR'S QUARTER: The company reported a loss of 40 cents per share on revenue of $3.02 billion.

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