It is the retail turnround that industry executives across the US are watching.
After a torrid fours years that wiped more than $6.5bn from JC Penney’s market valuation, the challenge is whether the department store chain can compete in an era in which fast fashion and online retailers like Amazon are dominating.
The company’s results on Thursday offered some evidence that JC Penney, whose origins date back to the turn of the 20th century in Wyoming, can win back customers it lost after eliminating coupons and stodgier brands in an effort to better compete with Target.
Same-store sales in the three months to the end of January climbed 4.4 per cent from a year earlier, eclipsing Wall Street expectations.
The company swung to a loss of $59m, or 19 cents per share, compared with a profit of $35m a year earlier as it increased discounts to woo consumers.
Sales climbed 3 per cent to $3.9bn. Adjusting for certain items, JC Penney said it broke even.
Analysts on Wall Street had expected the company to report adjusted earnings of 13 cents a share on sales of $3.9bn.
Despite the rise, equity analysts remained downbeat about JC Penney’s prospects with Evercore warning that the chain will never fully recover lost sales.
“JC Penney is a top-line show-me story with today’s apparel backdrop facing price deflation given increasing capacity — ie. fast fashion [and] online entrants — and rising costs — omni-channel [and] technology investments,” said Matthew Boss, an analyst with JPMorgan.
“[This makes] the outlined turnround road map increasingly steep on the surface,” he added. Its shares fell 7 per cent to $8.50.
Gap Inc warned that the slowdown at some of the US’s most important ports, including those in California, Oregon and Washington, will cut current-year earnings by roughly four percentage points, as T-shirts and sweaters fail to make their way to stores.
The company said it expected to earn between $2.75 and $2.80 a share in the year that runs to the end of January 2016, short of Wall Street expectations.
The forecast included a 13 cent hit related to the delayed merchandise that is sitting at West Coast ports, as well as a 16 cent weight from the dollar’s strength.
Without the two, Gap’s guidance would straddle the $3.07 per share forecast that analysts on Wall Street had expected.
Analysts with Cowen & Co said the guidance was “insightful” and commended the retailer “on exceptional expense management”.
Herbalife shares fell 11 per cent to $31.01 after the nutrition supplement company cut its full-year guidance by a fifth on Thursday as the stronger dollar cuts into the company’s results. The company reduced its 2015 target to a range of $4.10 to $4.50 a share, shy of Wall Street forecasts for $5.08 a share. The outlook was earlier as high as $5.75 per share.
The S&P 500 fell 0.3 per cent to 2,104.50, while the Dow Jones Industrial Average shrunk 0.5 per cent to 18,132.70. The technology-heavy Nasdaq Composite was 0.5 per cent lower at 4,963.53.
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