Patrick T. Fallon/Bloomberg via Getty ImagesBy ANNE D’INNOCENZIO
and MICHELLE CHAPMAN
PLANO, Texas — J.C. Penney said Thursday that a key sales barometer rose in October for the first time in nearly two years, a sign shoppers are slowly returning to the store brands brought back to its shelves.
But the beleaguered company, based in Plano, Texas, warned that its profit margins would be hurt as it had to discount heavily to get rid of an overhang of merchandise from the first half of the year.
Investors were encouraged by the report, driving Penney (JCP) shares up in morning trading. But some analysts are wary, noting the department store chain still has to discount heavily to grab shoppers.
“What they are doing is giving the store away in both new merchandise and clearance,” said Brian S. Sozzi, CEO and chief equities strategist at Belus Capital Advisors.
News from Penney came as a handful of other retailers including Costco Wholesale (COST) and Limited Brands (LTD) reported monthly sales gains in October that were better than analysts expected. That showed that a partial government shutdown that lasted 16 days had a limited impact on shoppers’ willingness to spend. That’s encouraging heading into the crucial holiday shopping season.
Penney said sales at stores open at least a year edged up 0.9 percent last month — the first increase since December 2011. This figure is a key indicator of a retailer’s health, because it measures growth at ongoing locations by excluding results from stores recently opened or closed
In September, the figure fell 4 percent, and in August, the same measure dropped 9.8 percent.
October online sales climbed 37.6 percent from last year, with home merchandise sales rising more than 50 percent from September 2012. There were also strong sales of women’s, men’s and children’s clothing.
J.C. Penney said it continues to work on remerchandising and reconfiguring its home department in stores and online so that it matches better with how customers shop. The company said that its effort appears to be having an impact already, as the home department saw the biggest percentage sales increase among its units in October.
The store is trying to recover from a failed turnaround attempt spearheaded by former CEO Ron Johnson. Penney’s board ousted Johnson in April after 17 months on the job and rehired former CEO Mike Ullman.
Under Ullman, J.C. Penney has brought back frequent sales events that Johnson ditched. It’s also restored basic merchandise, particularly store brands such as St. John’s Bay, that was either phased out or eliminated by Johnson in a bid to attract more affluent, younger shoppers. Under Johnson, the company brought in trendy names like Betsey Johnson and focused on every day prices, eliminating hundreds of sales.
On Thursday, J.C. Penney credited its increased October sales to restoring inventory of private brands such as St. John’s Bay and Stafford. The chain said it also had significant sales increases in national brands, including Nike, Carter’s, Dockers and Levi’s.
Ullman said that the company is working on restoring the proper mix of private, exclusive and national brand products so that it fits better with shoppers’ wants and needs and results in fewer markdowns.
The CEO said that the rise in October sales was particularly encouraging because the retailer was dealing with the federal government shutdown as well as a tough consumer environment.
Gearing up for the holidays, Ullman said the company is ready to execute its aggressive plans. This includes opening its stores on Thanksgiving night.
“We expect the holiday season to be extremely competitive, and we are ready to win,” he said.
J.C. Penney will report its third-quarter financial results on Nov. 20. Its stock rose more than 6 percent, or 48 cents, to $8.18 a share in morning trading. Shares have lost 61 percent of their value since the beginning of the year and 82 percent since early February 2012 when investor enthusiasm was high over Johnson’s reinvention plan.
At Costco, revenue at stores opened at least a year rose 3 percent in October, beating Wall Street’s expectations for a 2.6 percent gain, according to Thomson Reuters. L Brands, owner of Victoria’s Secret, Bath & Body Works and other retail outlets, reported that revenue at stores opened at least a year was up 8 percent in October, The results soared past a 2.2 percent gain that Wall Street analysts expected.