Reuters - Hot Stocks

UPDATE 5-J.C. Penney sales drop adds to department store blues

J.C. Penney Co Inc (JCP.N) joined Macy’s Inc (M.N) and Kohl’s Corp (KSS.N) in reporting a drop in total sales in a quarter marked by weak demand for apparel – at their stores, at least.

The department store operator also reported a surprise drop in sales at stores open at least a year, the first fall in six quarters for a company that has been a bright spot in a sector struggling with a shift in spending patterns.

J.C. Penney’s shares fell as much as 13 percent in premarket trading, but recovered most of that after the market opened as investors focused on the company retaining its full-year forecast for same-store sales growth and adjusted profit.

“JCP is making the right investments in home and appliances to try to mitigate consumer malaise toward apparel,” Deutsche Bank analyst Paul Trussell wrote in a note, adding that the company had multiple drivers to return to sustainable comparable sales growth, unlike other retailers.

Investors were also encouraged by the fact that the 0.4 percent fall in same-store sales reported by J.C. Penney was not as steep as those suffered by its rivals.

Shoppers are increasingly spending more on purchases such as electronics, homes, travel and cars than on apparel, a major source of revenue for department stores.

Current spending trends are likely to continue in the near term, J.C. Penney’s chief financial officer, Ed Record, said on a call with analysts.

Chief Executive Marvin Ellison also cited warmer-than-expected weather in February as a negative factor.

“Our over-reliance on apparel hurt us in times during the first quarter when weather patterns were not conducive to apparel sales,” Ellison said.

However, the company said sales started picking up in the last two weeks of April and early May.

U.S. retail sales in April recorded their biggest increase in a year as Americans stepped up purchases of automobiles and a range of other goods, the Commerce Department reported on Friday.

And sales at clothing stores surged 1.0 percent, the biggest increase since May 2015, the data showed.

J.C. Penney’s shares were down about 1 percent at $ 7.70 in morning trading.

BIG MISS ON SAME-STORE SALES

The 0.4 percent fall in sales at J.C. Penney stores open at least a year came as a shock. Analysts polled by research firm Consensus Metrix had expected a rise of 3.3 percent.

Still, Penney outperformed Macy’s, Kohl’s and Nordstrom Inc (JWN.N) on that measure. Same-store sales at Macy’s, the biggest U.S. department store operator, fell 5.6 percent while those at Kohl’s dropped 3.9 percent and Nordstrom’s slipped 1.7 percent.

J.C. Penney’s net loss more than halved to $ 68 million, or 22 cents per share, in the first quarter ended April 30.

But net sales fell 1.6 percent to $ 2.81 billion, the first drop in five quarters. Sales also missed the average analyst estimate of $ 2.92 billion.

J.C. Penney cut its forecast for gross margin growth for the year ending January 2017 to 10-30 basis points from 40-60, as online sales increase and it starts to sell low-margin appliances at more stores.

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Graphic: U.S. department store earnings (tmsnrt.rs/1O2dOCo)

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(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Ted Kerr and Sriraj Kalluvila)


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