Struggling department-store operator, JC Penney, announced it will cut 2000 jobs and close 33 stores as it tries to get back on the path to profitability. The news raises concerns that Penney’s holiday season sales were not what the company hoped for and that the chain needs to do even more to recover from a turnaround plan that has had disastrous results. JC Penney Co earlier this month said it was pleased with its holiday results but declined to give sales figures, raising concern
among Wall Street analysts about how the season actually fared.
The cuts announced on Wednesday should save more than $US65 million ($A73.15 million) annually. The company will take $US26 million in pretax charges in the third quarter and $US17 million in future quarters. Penney has 116,000 workers and operates more than 1100 stores. All the job cuts are related to the store closings.
The holiday season is crucial since it can account for anywhere from 20 to 40 per cent of a retailer’s annual sales. But at JC Penney, the stakes are higher.
Penney is trying to recover from massive losses and plummeting sales drops that occurred under former CEO Ron Johnson, who was ousted in April after being on the job for 17 months. The company then brought back former CEO Mike Ullman.
Penney has since reinstated the frequent sales events that Johnson ditched. It’s also restored basic merchandise, particularly store brands like St John’s Bay, which were either phased out or eliminated in a bid to attract younger, more affluent shoppers.
Penney had been releasing monthly sales figures over the last few months, which had showed some improvement. Sales at stores open at least a year edged up 0.9 per cent in October – the first increase since December 2011. That’s a key indicator of a retailer’s health. Last month, the company said that revenue at stores opened at least a year jumped 10.1 per cent in November, helped by a strong start to the holiday season.
But on January 8, it offered no figures regarding December sales when it came out with a brief release to update investors on its holiday performance. It said that it was “pleased with its performance for the holiday period,” and that the holiday season showed “continued progress in its turnaround efforts”.
It also reaffirmed its outlook for the fourth quarter that was first announced in late November. At that time, it said that Penney’s revenue at stores opened at least a year and gross profit margin will likely improve “sequentially” and year over year.
Penney’s shares fell eight US cents to $US6.93 in after-hours trading on Wednesday when Penney made the announcement, after gaining eight US cents to close regular trading at $US7.01. The shares have lost 84 per cent of their value since February 2012 when investor enthusiasm was high over Penny’s transformation plan.
The news comes a week after US department store Macy’s confirmed it was cutting 2500 jobs and closes stores as part of a reorganisation to sustain its profitability.
AP
