J.C. Penney unveils turnaround strategy as it warns of weak sales

Shares of J.C. Penney Co. fell almost 11% after the department store operator warned that its sales last month were weaker than expected and cut its outlook for a key sales measure for the current quarter.

The warning overshadowed the retailer’s unveiling of a strategy at its analysts’ meeting Wednesday that Penney said would boost sales by $2.55 billion over next three years. It would do so by improving the productivity of its home area, expanding e-commerce and sprucing up key areas such as beauty, jewelry and accessories.

Penney sees the opportunity for an additional $1 billion in sales in continued market-share growth. That would bring the chain’s annual revenue to $14.5 billion by fiscal 2017. That’s still well below the $17.3 billion it generated before sales went into a free fall under Ron Johnson, its former chief executive.

Although Penney executives blamed the September sales shortfall on too much clearance merchandise a year ago, they also cited a weak sales environment for retailers. That shows the Plano, Texas, company won’t turn around from a botched transformation plan by Johnson without some bumps in the road. Johnson, a former Apple Inc. executive, was ousted in April 2013 after 17 months on the job.

Penney is clearly coming back from the dead, but the question remains whether the chain can continue the momentum as it heads into the holiday shopping season.

“J.C. Penney is in a far stronger position than it was when we began our turnaround 18 months ago,” said Mike Ullman, who came back to the company’s helm in April 2013. But he acknowledged that there was still a lot of work to do. Before Johnson’s tenure, Ullman had been the company’s CEO for seven years.

Ullman has been trying to win back shoppers by restoring sales and basic merchandise that Penney ditched under Johnson’s tenure — discontinuing some of the trendy new brands like William Rast and Joe by Joseph Abboud and bringing back store labels.

Penney also had to increase markdowns earlier in the year to get rid of excess inventory. That has helped result in three straight quarters of increases in sales at stores open at least a year, starting in last year’s holiday quarter. But those increases still haven’t outweighed last year’s drastic declines.

During the presentation in New York, Ullman and other executives said that revitalizing areas like beauty, shoes, handbags and jewelry is crucial because customers that shop in those departments also cross the aisle to the fashion departments.

Penney said it now expects sales at stores open at least a year to increase by a low single-digit percentage for the third quarter, down from its previous forecast of mid-single-digit growth. The company maintained its third-quarter and full-year earnings projections.

Penney has said that it is looking for a permanent CEO but Ullman offered no hints that would come any time soon.

J.C. Penney shares fell $1, or 10.9%, to $8.19 on Wednesday. The shares have lost 80% of their value since early 2012 when investor enthusiasm was high over Johnson’s turnaround strategy.