DALLAS _ J.C. Penney cut its outlook for full-year results on Friday saying it accelerated markdowns in the third quarter ended in October to move out slow-moving apparel, primarily in women's, its largest department.
The company said it now expects 2017 comparable store sales to be flat or down 1 percent versus its most recent guidance for sales to be up as much as 1 percent. Penney also slashed adjusted full-year earnings per share.
Penney's shares fell 55 cents, or 15 percent, to close at $3.12 a share. Penney's early read on the third quarter could drag down other department store stock prices, which are already trading at historic lows. Penney, based in suburban Dallas, will report third quarter results on Nov. 10.
Penney CEO Marvin Ellison said the women's department was reset during the third quarter with more casual and contemporary clothing. At the same time the company decided to clear out inventory that didn't fit the new strategy, he said. Prices were also cut on slow-moving apparel in other departments.
"Following this comprehensive reset, we saw an improvement in performance, particularly in our women's division confirming these actions were necessary to drive growth in our women's apparel business," Ellison said in a press release. After last Christmas, Ellison changed leadership in women's and said the department was slow to catch on with women's trends and stuck with tailored and traditional workplace apparel too long. For new and exclusive women's merchandise Penney struck a deal with Lifetime reality show Project Runway. For the holiday it's adding a collection designed by "Black-ish" star Tracee Ellis Ross.
Third quarter same-store sales are expected to increase in the range of 0.6 percent to 0.8 percent. The retailer expects to report an adjusted third quarter loss in the range of 40 to 45 cents a share.
During the quarter, Penney centralized teams to work under new chief financial officer Jeffrey Davis. Penney said that allowed the company to "streamline its pricing, promotion and markdown strategies, and consolidate all forecasting and planning capabilities to begin improving its predictive analytics and provide leadership with a more focused view of current sales trend."
Stores were told what merchandise to discount and when. The liquidation freed up funds to buy new and trending merchandise categories, Ellison said.
Gordon Haskett analyst Chuck Grom titled his latest report "Big Problems in Big D" and lowered performance targets for Penney. After speaking with Penney management Friday morning and recently visiting with rival Kohl's, Grom said, "we don't view today's announcement as a department store wide problem, more a J.C. Penney company specific one."
Grom found some positives Friday: store traffic was up in September and October, appliance sales more than doubled from a year ago, online sales were up in the double digits and fourth quarter results should be better.
