JC Penney CEO Says “We Will Stay The Course”, after Disappointing Q

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Ron Johnson, chief executive officer of J.C. Penney Company, Inc. (NYSE:JCP), guaranteed the company’s growth next year with its new business plan, despite the lower than expected quarterly sales.  It has been six months since Johnson changed the company’s pricing strategy, but customers are not attracted.

JC Penney CEO Says "We Will Stay The Course", after Disappointing Q

The company reported a 21.7 percent sales decline for the second quarter. The result is lower than the 17.4 percent sales drop expected by analysts. JC Penney’s revenue plummeted by 22.6 percent to $3.02 billion, lower than the expectations of analysts. The company also reported its sales through its website (jcp.com) dropped by 32.6 percent to $220 million, compared with the same period last year. According to the company, its over-all sales result was adversely affected by its reduced marketing activities during the latter part of the quarter.

J.C. Penney Company, Inc. (NYSE:JCP) reported $147 million net loss, or 67 cents per share during the second quarter. Excluding items, the company lost 50 cents per share. Analysts expected the company to lose $25 cents per share. During the same period last year, the company reported $14 million profit, or 7 cents per share.

In a statement, Johnson expressed determination in continuing its turnaround strategy. He said, “We have now completed the first six months of our transformation, and while business continues to be softer than anticipated, we are confident the transformation is on track.  The transition from a highly promotional business model to one based on everyday value will take time, and we will stay the course.”

Walter Loeb, president of Loeb Associates, a management consultancy for the retail industry, thinks Johnson does not understand JC Penney’s customers. He said, “I am very skeptical as to whether he understands that the JC Penney customer is looking for value and perceives value only with couponing. As long as Macy’s, Inc. (NYSE:M) keeps banging away, I don’t think he has a ghost of chance.”

Brian Sozzi , chief analyst for research firm, NBG Productions, thinks Johnson’s pricing strategy is not working. He said, “This is worse on top of whatever I thought was going to be a bad story. I am losing faith in the pricing switch.” The company’s largest shareholder Bill Ackman, has also expressed confidence in the company and Johnson.

Johnson decided to get rid of the sales coupons and discounts and implemented an everyday low price.  The sudden change in the company’s marketing and pricing strategy obviously pushed away consumers, who are constantly using coupons to avail discount prices. Its competitors such as Macy’s and Kohl’s Corporation (NYSE:KSS) are still using sales and discount coupons to boost their sales.

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