J.C. Penney to hold down prices for back to school, holiday despite Q1 declines

Dive Brief:

J.C. Penney’s total Q1 net sales fell 4.3% year over year to $1.3 billion, according to financial filings Monday. Exceeding expectations were JCPBeauty, which saw double-digit year-on-year comp sales, along with fine jewelry, home, men’s and kids’.
Net loss widened 9.5% to $69 million. Consolidated adjusted EBITDA swung into the black, reaching $2 million from last year’s negative $3 million; this year’s result excludes one-time restructuring charges, mostly vendor write-offs and other severance charges.
The department store warned that tariffs threaten profits but also stated that it “plans to maintain pre-tariff pricing on back-to-school basics and other key holiday areas.”

Dive Insight:

Despite the sales and profit declines, this was a decent quarter for J.C. Penney, given that “sales are now deteriorating at a much shallower pace than previously,” according to GlobalData Managing Director Neil Saunders.

“This isn’t exactly a win – especially as the decline comes off the back of weakness in the prior year – but it provides a little comfort that JCP is not on a headlong dash to irrelevance,” he said by email.

The department store’s recently unveiled “Yes, J.C. Penney” campaign helped boost traffic by 600 basis points year over year and brand search by 22%, according to its filing. This is backed up by research from Placer.ai, which found that, after ads began running in April, “traffic to the chain picked up significantly,” with visits to stores up 0.7% in April and  3% in May compared to last year. In some areas, those included single shoppers, which suggests that younger consumers are discovering the brand, per Placer.ai’s report.

The retailer’s integration into Catalyst Brands earlier this year is also paying off, according to the filing. Synergies from the January tie-up with various Authentic Brands Group brands and their operators helped bring selling, general and administrative costs down by $36 million compared to a year ago.

The more modest declines in Q1 mean that Penney is not the worst-performing department store, which Saunders said was its fortune for the better part of last year.

“Again, this is a crumb of comfort, but it will provide some confidence to management. It also underlines that the work the company has done to improve stores and invest in ranges might be having an impact,” he said. “The losses remain a modest concern but given JCP’s wider financial position and its place as part of a larger group, it is not a disaster.”