NEW YORK, N.Y. – Struggling department-store operator J.C. Penney announced it will cut 2,000 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.
J.C. Penney Co., based in Plano, Texas, said earlier this month said it was pleased with its holiday results but declined to give sales figures, raising worries among Wall Street analysts about how the season actually fared.
“It was a season where they realized that they had to do more to reconnect with the customers they’ve lost,” said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors.
The cuts announced Wednesday should save more than $65 million annually. The company will take $26 million in pretax charges in the third quarter and $17 million in future quarters. Penney has 116,000 staffers and operates more than 1,100 stores. All the job cuts are related to the store closings.
Penney is expected to be among a number of stores that will be announcing it will be cutting staff and closing stores in the next few weeks. After the holiday season, stores typically re-evaluate their store fleet and announce job cuts and store closings. But analysts believe that after a tough holiday season where stores had to discount early and often to get shoppers to buy in a tough economy, the cuts will be deeper than normal, says John Challenger, CEO of Challenger, Gray & Christmas, a global outplacement firm. Stores are also contending with a shift in consumer spending to PCs and mobile devices.
Macy’s Inc., a standout among its peers, announced last week that it was cutting 2,500 jobs as part of a reorganization to sustain its profitability.
“Retailers are having to come to terms with these consequences,” Challenger said.
The holiday season is crucial since it can account for anywhere from 20 per cent to 40 per cent of a retailer’s annual sales. But at J.C. 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 Jan. 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 8 cents to $6.93 in after-hours trading Wednesday when Penney made the announcement, after gaining 8 cents to close regular trading at $7.01. The shares have lost 84 per cent of their value since February 2012 when investor enthusiasm was high over Penny’s transformation plan.