J.C. Penney’s Q2 net sales fell 10% year over year to $1.6 billion. Including credit card revenue, (down 11% to $71 million), total revenue in the period fell 10% to $1.68 billion. Digital sales as a percentage of total sales rose an unspecified amount.
Merchandise margin in the quarter improved by 70 basis points from last year, thanks in part to strength in kids and home, and frequency of store visits rose 350 basis points. Inventory was down 14%.
Net income in Q2 plunged 65% to $36 million. For the first half of the year, EBITDA tumbled 56% from the comparable period in 2022 to $147 million, per filings with the Securities and Exchange Commission.
J.C. Penney is embarking on a billion-dollar turnaround at a tough time for retail, especially department stores. In Friday’s report, the retailer noted that “the macroeconomic environment continued to put pressure on consumer discretionary spending” in the second quarter.
Throughout the year so far, spending on discretionary goods has often been better than feared, even for apparel in some months, according to numbers from the U.S. Commerce Department. But department stores have shown consistent declines this year.
A dramatic turnaround is needed, in part because J.C. Penney’s woes aren’t entirely the result of outside forces, according to Global Data Managing Director Neil Saunders.
“JCPenney’s failure to address the slide in sales underlines that it has an enormous amount of work to do in rebuilding its proposition and relevance to American consumers,” Saunders said of the retailer’s Q2 report. “Market conditions are certainly tough, but JCPenney’s performance is way worse than peers and shows it is falling behind.”
In Friday’s filing, J.C. Penney pointed to increased store traffic and strength in its private labels. But Saunders said stores and merchandise both require major improvements.
“Despite the company’s grand plans, most of its stores are dismal and unappealing and the company’s offer is pretty bland,” he said by email. “This makes it all too easy for consumers to cut back on buying from it as their finances become more constrained.”
Penney hasn’t released its financial results since being acquired out of bankruptcy by two of its landlords, mall REITs Simon Property Group and Brookfield, in late 2020. But detailed financial information is being provided to the SEC by a property trust tasked with selling some of the company’s property.
As at Macy’s and Nordstrom during a comparable time period, credit card revenue has slipped, and executives at both retailers said delinquencies were up. While J.C. Penney noted that “credit income declined slightly reflecting the continued health of the underlying customer portfolio,” the company also said that “approval rates for new customers remained strong throughout the quarter.”
Amid the declines, J.C. Penney’s report contained points of strength, including inventory reduction, expense cuts and margin improvements. In its filing the company also pointed to over $1.7 billion in liquidity, long-term debt under $500 million “and one of the lowest debt leverage ratios in the retail industry.”
The company’s management, led by former Levi’s executive Marc Rosen since 2021, “deserves credit for stabilizing the business,” according to Saunders.
“While JCPenney is in decline, it has remained profitable and has made progress in terms of clearing down inventory,” he said. “This provides a stable foundation on which to try and build up the business.”