* Sales fall 31.7 pct vs analysts estimate 27.8 pct
* Analyst says CEO needs to right ship this year
* Cash holdings under $1 billion
* Shares down 14.5 pct after hours
By Phil Wahba
Feb 27 J.C. Penney Co Inc on Wednesday
reported its sharpest sales drop since announcing a grand
transformation plan 13 months ago, a plunge Chief Executive Ron
Johnson is trying to stop by largely reversing his failed
In the winter holiday season quarter, the most important for
retailers, Penney's comparable sales fell 31.7 percent, steeper
than the 27.8 percent drop Wall Street was anticipating.
The department store operator's shares were down 14.5
percent at $18.09 in after hours trading.
Johnson's master plan, unveiled in January 2012, originally
called for eliminating most discounts and sales events in favor
of "everyday low prices" and refashioning its stores by rolling
out dozens of branded boutiques for hip brands by 2015.
While the first set of boutiques, including Levi's and Izod,
have shown promising results since opening last summer, getting
rid of the sales events and coupons that long-time Penney
shoppers expected was disastrous, Johnson conceded.
So he unveiled an updated pricing strategy on Wednesday in
which Penney will offer deals primarily on its own private
brands, but stick to "everyday low prices" for most everything
else, going further than its announcement last month that it
would bring back a few sales events and give more coupons.
"We also made some big mistakes, and I take personal
responsibility," Johnson said on a webcast. "We will offer sales
each and every week as we move forward."
Sales at Sephora, Levi's and Izod boutiques within Penney
stores have done well under "every day low prices," which means
prices are set low from the start, rather than marked up then
The idea of the new promotional strategy is to reconnect
with long-time Penney shoppers who have fled, Johnson said.
There were early signs of improvement: jewelry sales were up
36 percent this Valentine's Day thanks to a special sale the
company held this year.
This spring, Penney expects to open another 20 boutiques,
including shops for home products brands like Michael Graves and
Jonathan Adler, and clothing like the popular Canadian brand Joe
Joe Fresh items are already for sale on Penney's website. It
is was already its top selling brand online and bringing in
shoppers who don't typically go to Penney, Johnson said.
The boutiques, where sales have typically outperfomed the
overall stores', are key to turning Penney around.
"We expect the ability to return to growth to be much, much
greater when we complete the transformation of Joe Fresh and
home," said Johnson.
"He's going to have to recover this year or he's done," said
Ron Friedman, retail practice leader at the consulting firm
Marcum LLP. "He's running out of time. He has to have it turned
around by the third quarter."
Hedge fund manager William Ackman, whose Pershing Square
Capital Management is Penney's top shareholder, has repeatedly
professed his faith in Johnson's strategy and said it would take
a few years to come to fruition.
HOLIDAY SHOPPERS WANTED COUPONS
Retailers ranging from Kohl's Corp to Target Corp
have said the holiday was heavily discount-driven,
putting additional pressure on Penney's no sales, no coupon
Gross margin was 23.8 percent of sales, down 6.4 percentage
points from a year earlier as the company had to slash prices at
the end of the season to clear unsold merchandise.
Sales were down 28.4 percent to $3.9 billion in the fourth
Penney reported a net loss of $552 million, or $2.51 per
share in the 14 weeks ended Feb. 2, compared with a loss of $87
million, or $0.41 per share for a 13-week period a year earlier.
Excluding restructuring charges and non cash pension plan
expenses, the company posted an adjusted loss of $1.95 per
share, as net sales fell 27 percent to $3.88 billion.
The department store chain had $930 million in cash and cash
equivalents at the end of the quarter. Analysts had been closely
watching the cash figure to see if it dropped much below the $1
"Looks like they really did not burn that much cash,"
Morningstar analyst Paul Swinand said, pointing to the fact that
operating cash flow for the year was roughly neutral.
The company was able to preserve cash by dramatically
reducing inventory to lower reflect sales levels and deferring
payment to some vendors.
Johnson said he still intended to fund the rollout of the
stores transformation from cash generating from operations.