J.C. Penney on Tuesday reported that its comparable store sales for the nine-week period ended Jan. 5 fell 3.5% on a shifted basis (adjusted for the timing of the sales) or 5.4% on an unshifted basis.
The retailer also said it would close three stores this spring "as part of an ongoing evaluation of its store portfolio occurring over the next few months." The company will provide more information about which stores those will be on Feb. 28 when it reports its fourth quarter and full year results, according to a company press release.
The company reaffirmed that it expects to generate positive free cash flow in fiscal 2018, reduce inventory in excess of $225 million (or 8%) and end the year with liquidity of more than $2 billion.
The holidays represent most retailers’ best opportunity to round out their year with significant sales, but the season also often produces winners and losers, and J.C. Penney doesn’t appear to be winning.
"Although this was a jolly holiday for most retailers, there was little cheer for J.C. Penney," GlobalData Retail Managing Director Neil Saunders said in comments emailed to Retail Dive. "Worryingly, the pace of decline remains the same as that posted during the third quarter, even though there was significant momentum in consumer spending across both Black Friday and Christmas."
Yet the holidays may have been retailers’ best chance to grab sales and win over shoppers, in light of signs that the economy and consumer confidence are faltering. And Penney’s reiteration of positive cash flow and reduced inventory may not be enough to withstand that, according to Saunders. "[T]he fact that the company cannot trade successfully in even the most auspicious of circumstances does not bode well for a year that will be more challenging than 2018."
While many retailers took full advantage of their physical stores to entice shoppers with appealing merchandising, Penney’s locations didn’t get that kind of attention, according to Saunders. "J.C. Penney went into the festive season in a weakened state and, therefore, was not able to capitalize on the favorable trends," he said. "Stores, for example, were densely packed full of merchandise and provided consumers with a less than inspiring shopping experience."
Those failures carried over online, "where a vast array of products with few standout items reduced conversion rates," he also said. "Extensive discounting did little to remedy these weaknesses or stimulate revenue growth."
The number of stores the company says it will shutter pales in comparison to the massive closures at Sears or even its own previous announcements in recent years, but they may not be the end of the story. The retailer is performing an "ongoing evaluation of its store portfolio occurring over the next few months, which includes assessing locations that may not meet required financial targets or represent a market opportunity to capitalize on a beneficial real estate asset," according to its release.
That could "fuel further shrinkage for the department store industry in 2019," Moody’s Department Store Analyst Christina Boni said in comments emailed to Retail Dive, in which she also noted that, while the retailer is poised to benefit from Sears’ bankruptcy, that might not be enough to ease Penney’s troubles. "Although we foresee the opportunity to benefit from its overlap with closed Sears stores, J.C. Penney continues to struggle as department store performance remains bifurcated with leveraged players generally finding it more difficult to compete."
Many retailers, including Target, Walmart, Amazon and department stores like Macy’s, sought to capitalize on the absence of Toys R Us this year with elevated toy offerings, but Penney’s attempt was weaker than most, and that likely hurt it, Saunders said. "While J.C. Penney did make some effort to boost sales by stocking toys over the holidays, the overall impact was lackluster," he noted. "In typical fashion, toy departments lacked discipline and across many stores, with the presentation, merchandising and ranging all leaving a lot to be desired. Against stiff competition from other players, this approach was simply not good enough to drive trade."
But, despite several attempts to right its apparel offering, especially for women, that remains its biggest weakness, and that will continue to vex the company, he warned. In 2017, the company attempted a drastic reset and swept away much of its women's inventory as it warned of a critical sales slump and last year debuted new lines. "Given the criticality of the category in driving custom, this is now having a negative knock-on effect on other sectors like home and electronics," Saunders said. "In essence, unless the issues in clothing are corrected, J.C. Penney will remain in a death spiral."