J.C. Penney sales slide in Q3; cuts annual forecast

Weakness in apparel helped make for a disappointing third quarter for J.C. Penney Co. as the retailer cuts its forecast amid sliding sales.



On the positive side, Penney said sales trends improved in October, fueled by increasing momentum behind its new appliance business.



“We view our October sales results -- specifically our acceleration in the last two weeks of the month -- and the benefit from appliances as examples of what we expect for the balance of the fourth quarter,” said Penney CEO Marvin Ellison, who added that “despite experiencing softness in apparel sales, we are continuing to improve the bottom line of our business.”



Penney’s same-store sales in the quarter fell 0.8%, missing analysts' forecast for a gain of 2.7%.



Net sales fell 1.4% to $2.86 billion, less than the $2.95 billion analysts had expected.



The company reported a net loss of $67 million, or 22 cents per share, compared to a net loss of $115 million, or 38 cents per share, in the year-ago period. Excluding items, Penney lost 21 cents per share, in line with analysts' forecasts.



Despite Penney’s weak sales, some industry experts said the chain’s turnaround is still on track. Neil Saunders, CEO of retail insights and consulting firm Conlumino, said he is encouraged by Penney’s entry into appliances.



“This has given the company a new stream of growth, especially at a time when consumers are abandoning Sears in increasing numbers. From our store visits, the appliance offer is comprehensive and well executed and we believe it will bolster the sales line in the quarters ahead,” Saunders said. “Home furnishings is another area that performed well, reflecting the refurbishment of many departments and the more inspirational ranges that JCP is now selling. Looking ahead we believe this will be another solid growth category in the months ahead.” For more commentary, click here.



For the full year, Penney cut its same-store sales estimate from a gain of 3% to 4% to a new range of 1% to 2%. It also now expects gross margins to be flat for the full year versus an earlier projection that had them improving by 10-30 basis points.



SG&A spending is still expected to decline, and EBITDA is still forecast at $1 billion. The retailer continues to expect adjusted EPS “to be positive” and free cash flow to “improve” compared with 2015.