Can J.C. Penney Turn Around Its Turnaround?

(Bloomberg Opinion) -- Sound the alarm: Things are even bleaker at J.C. Penney Co. than you already suspected.

The department store giant on Thursday reported that comparable sales plunged 5.4 percent in the third quarter from a year earlier. That was far worse than the slight 0.8 percent decline analysts had estimated.

Can J.C. Penney Turn Around Its Turnaround?

The company slashed its full-year comparable sales guidance and withdrew its earnings guidance as its new CEO, Jill Soltau, races to understand the chain’s problems and to craft a new strategy. She’s going to need to move urgently, because investors’ patience is already frayed and the company’s problems are wide-ranging.

For example, the appliance category was singled out as one that underperformed the companywide comparable sales figure in the quarter. That had been a significant area of investment and focus under previous CEO Marvin Ellison, who was determined for J.C. Penney to step into the void that Sears Holdings Corp. was leaving as it closed more and more stores.

This weak showing suggests that a lot of corporate energy has been poured into an effort that is not paying off. And worse, the appliance adventure probably distracted J.C. Penney from shoring up its core apparel business.

It raises the question of whether J.C. Penney’s other efforts to grab troubled retailers’ scraps — carrying more toys and adding expanded baby departments to attract one-time Toys “R” Us shoppers — have any prayer of bearing fruit.

Meanwhile, J.C. Penney has been on a quest to clear a glut of slow-moving inventory by putting it on clearance. In theory, that’s a good idea, and the company did manage to reduce inventory levels in the quarter. In fact, I even defended J.C. Penney roughly a year ago when its stock was hammered after it cut its guidance and announced this effort to unload unappealing merchandise. But the work is taking an awfully long time. For a company that has struggled to return to consistent profitability, these are dents in its gross margin that it can ill afford.

Also, it looks particularly bad for J.C. Penney that it has stumbled when several of its peers are finding their footing. Macy’s Inc. built on its momentum on Wednesday when it reported a 3.1 percent increase in comparable sales. Shares of Kohl’s Corp. are up nearly 35 percent year-to-date, and analysts expect it to deliver yet another quarter of comparable sales growth when it reports earnings next Tuesday. If J.C. Penney can’t get its act together in this environment, can it ever?

In Soltau’s remarks during a conference call on Thursday, investors heard only the smallest of hints as to how she’ll aim to steer the business. She said she thought the stores were “over assorted” — retail jargon for carrying too much merchandise; she said she’ll be reviewing everything from how the company leverages customer data to its promotion strategy. On some level, I suppose it’s good that, as a company outsider, Soltau is taking the time to pore over data and listen to her lieutenants before decreeing a strategy. But time is of the essence, so she has little room for error. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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