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J.C. Penny Stock Sharply Lower in After Hours Trading

By: , dated May 16th, 2012

Shares of major retailer J.C. Penny Company Inc. (JCP: Charts, News) were down -4.05 or -12 percent in after hours trading, to $29.27 per share late Tuesday. The company announced lower than expected first quarter earnings after the closing bell, J.C. Penny stock had closed at $33.32 per share, down -0.22.

Plano, TX based retail chain J.C. Penny announced a loss of -$163 million, or -$0.75 per share in the first quarter of 2012, versus a profit of +$64 million or +$0.28 per share in the same period one year ago. Revenue was also lower, dropping -20 percent to $3.15 billion, while new store revenues fell -18.9 percent, analysts were expecting a loss of -$0.11 per share on revenue of $3.41 billion.

In addition to the earnings release, J.C. Penny also announced it was discontinuing its $0.20 quarterly dividend payment to stockholders. The dividend cut will raise an additional $175 million in funds for its multi-year plan for improving the retail chain announced in February.

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J.C. Penny Company, Inc. operates more than 1,100 department stores in all 50 United States and Puerto Rico. The company hired former Apple executive Ron Johnson, who took over as Chief Executive in November, Johnson has been under considerable pressure to turn things around at J.C. Penny’s, after successfully starting Apple’s (AAPL: Charts, News) retail outlets.

Johnson – who has stated he wants to make considerable changes to every aspect of the company, including product lines – is responsible for the company’s new pricing plan. The plan, adopted in February, does away with as many as 600 annual sales events in favor of everyday lower prices on all merchandise.

The pricing scheme is supposed to offer customers ‘predictable pricing;” nevertheless, as first quarter results confirm, many of its customers have gone elsewhere in pursuit of better prices. The pricing throughout the store replaces its formerly popular coupon sales strategy, which Johnson commented on in a conference after the earnings release: “We learned: Coupons were a drug. So the message was: The price is low without the coupon. They also had to change “best price Friday” to “good deal starts today.” Because people thought that “best price Friday” was only a Friday thing. Because they called it Friday.”

Other tactics Johnson is using to streamline the company include cutting sales commissions for the stores staff and laying off 600 associates at its staff headquarters in Plano, Texas, which it announced last month. The company also plans to eliminate another 300 associate positions at its Customer Call Center on July 1st.

In a statement published after the earnings release, Johnson wrote, “Sales and profitability have been tougher than anticipated during the first 13 weeks, but the transformation is ahead of schedule.” With earnings coming in at half the analyst consensus, Johnson faces an uphill battle against major competitors such as Target (TGT: Charts, News) and Wal-mart (WMT: Charts, News).

Despite the shock caused by the earnings release, it may be too early to tell if Johnson’s plans for improving the company will work. Time will tell if the price drop in JCP shares is a buying opportunity or a sell signal.

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Jay Hawk Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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