J. C. Penney Company, Inc. (NYSE: JCP) today provided a preliminary update on its expected third quarter performance, following actions taken during the quarter to accelerate the liquidation of inventory. The Company’s fiscal third quarter ends Oct. 28.
“Based on the encouraging results from a third quarter reset in women’s apparel, which expanded our casual and contemporary offering, we made the strategic decision to accelerate a wider transformation of the entire women’s department by clearing slow-moving inventory primarily in women’s and other apparel categories. Following this comprehensive reset, we saw an improvement in performance, particularly in our women’s division, confirming these actions were necessary to drive growth in our women’s apparel business,” said Marvin R. Ellison, chairman and chief executive officer for JCPenney.
For the third quarter, the Company expects that comparable store sales will increase in the range of 0.6 % to 0.8 % and cost of goods sold, which excludes depreciation and amortization, will increase 300 to 320 basis points compared to the same period last year, impacted primarily by a greater sales penetration in major appliances and e-commerce and the decision to accelerate the liquidation of inventory. The Company expects third quarter adjusted earnings per share to be in the range of ($0.45) to ($0.40)1.
Additionally, the Company took steps during the third quarter to create an integrated business function that combines the capabilities of its pricing and planning & allocation teams to work under the oversight of the Company’s newly appointed chief financial officer. Centralizing those functions allows the Company to streamline its pricing, promotion and markdown strategies, and consolidate all forecasting and planning capabilities to begin improving its predictive analytics and provide leadership with a more focused view of current sales trends.
“With a sharper and more disciplined focus on inventory management, we are taking a comprehensive approach to assessing the effectiveness of our inventory positions to make swift, informed decisions that promote faster inventory turn and higher productivity levels. Therefore, in the third quarter, we took the necessary steps to accelerate inventory liquidation primarily across all apparel divisions, which increases available funding to invest in new and trending merchandise categories.
We realize the inventory liquidation favorably impacted sales during the months of September and October; however, we expect to deliver a positive low single-digit sales comp for this period, excluding the benefit of clearance sales. Although these actions will create a short-term negative impact to cost of goods sold and earnings, long term, we firmly believe it was the right decision for the Company as we transition into the fourth quarter and fiscal 2018. In addition, based on the way our business is growing, including continued comp sales growth penetration in major appliances and omnichannel in the third quarter, we are taking a renewed approach to aligning our expense structure to match the mix of our growth initiatives. We look forward to providing more details about our third quarter performance during our earnings call on November 10th,” added Ellison.