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Nov 15, 2018

J.C. Penney shares plummet as sales slide gives bears more fuel

J.C. Penney Withdraws 2018 Guidance as 3Q Sales Tumble

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It’s more doom and gloom for embattled retailer J.C. Penney Co. The department-store chain’s shares plunged after reporting disappointing earnings as it continues to discount merchandise to clear the shelves of slow-moving inventory.

The company reported a contraction of sales and also withdrew its prior 2018 earnings guidance, replacing a forecast for flat same-store sales with an expected low-single-digit drop.

The report adds pressure to incoming Chief Executive Officer Jill Soltau, who took the helm exactly a month ago. While a healthy U.S. economy is buoying rivals’ results and powering a holiday shopping season that’s expected to be the best in recent memory, J.C. Penney is struggling to formulate a strategy.

“J.C. Penney’s slump is deepening as clearance events sink sales and margin, making the need for bold changes all the more urgent for new CEO Jill Soltau to revive growth soon,” Bloomberg Intelligence analyst Poonam Goyal said in a research note. “Getting inventory right the first time is critical to drive any growth.”

The shares fell as much as 14 per cent to US$1.05 in New York -- the lowest intraday level in decades. The stock has fallen 61 per cent this year through Wednesday’s close.

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Challenges Ahead

Department-store rival Dillard’s Inc. also plunged Thursday, sliding as much as 18 per cent after reporting third-quarter earnings that its CEO called “disappointing.’’

Comparable sales at J.C. Penney, a key metric for gauging a retailer’s health, fell 5.4 per cent in the quarter ended Nov. 3 -- deeper than the 0.8 per cent drop analysts had been expecting. Previously, the company reported four quarters of anemic, but positive, comparable sales. Revenue also fell.

J.C. Penney’s second and first-lien notes due 2025 and 2023 slipped to record lows and are among the biggest decliners in the U.S. high-yield market on Thursday morning in New York.

On the company’s earnings call, Soltau said that she’s talking with employees and “spending considerable time in the stores” as she works on a plan to deal with the retailer’s high inventory levels. The company highlighted jewelry, women’s apparel and men’s sections as bright spots in the quarter.

“We know we have more work ahead of us,” Soltau said.

--With assistance from Karen Lin (Global Data) and Katherine Doherty