After loss, J.C. Penney will begin offering more discounts

NEW YORK -- It just wasn't J.C. Penney's year.

The midpriced department store chain reported another much larger-than-expected loss in the fiscal fourth quarter on a nearly 30 percent plunge in revenue in the latest sign that shoppers aren't happy with the changes it's made in the last year.

The results mark a full year of massive quarterly losses and revenue declines that miss Wall Street estimates since J.C. Penney Co. began a turnaround strategy that included ditching most of its coupons and sales events in favor of everyday low prices, bringing in hipper designer brands such as Betsy Johnson and remaking outdated stores.

The quarterly performance puts additional pressure on CEO Ron Johnson, the former Apple Inc. executive brought in about a year ago to turn the money losing retailer into a hip and profitable company that can compete with the likes of Macy's or H&M. In the past year since Johnson rolled out his plan, even once loyal customers have strayed away from the 1,100-store chain.

While acknowledging during a conference call with investors that Penney made some mistakes, Johnson on Wednesday said Penney will begin offering sales in stores every week -- about 100 of the 600 or so the chain offered each year before the turnaround plan. That is in addition to the sales events that the company said last month it would start offering during holidays and other key sales periods throughout the year.

"Experience is making mistakes and learning from them, and I have learned a lot," Johnson said. "We worked really hard and tried many things to help the customer understand that she can shop any time on her terms. But we learned she prefers a sale. At times, she loves a coupon."

Teresa Cansell is one of those customers. She used to make the 45-mile trek from her farm near Leon, Kan., to a Penney store in Wichita about once a month. But since Penney started making changes last year, she's only been twice. And on her latest trip in December, she walked out empty-handed because she couldn't find a leather jacket she wanted.

"I loved the old J.C. Penney. I liked the coupons," Cansell, 53, said. "I used to go to Penney every time I got them in the mail. I would buy a ton of stuff."

Penney's results show that other shoppers feel the same way. During the fourth quarter that ended Feb. 2, Penney's revenue at stores opened at least a year -- a figure the retail industry uses to measure of a store's health -- dropped 31.7 percent.

That's on top of hefty drops in the previous three quarters of 26.1 percent in the third, 21.7 percent in the second and 19 percent in the first. And it's steeper than the decline of 26.1 percent Wall Street had expected.

Penney, based in Plano, Texas, also widened its loss to $552 million, or $2.51 per share, up from a loss of $87 million, or 41 cents per share a year ago. Excluding charges related to restructuring and management changes, Penney's adjusted loss for the quarter was $427 million, or $1.95 per share.

Total revenue dropped 28.4 percent to $3.88 billion. Analysts had expected a loss of 23 cents on revenue of $4.08 billion, according to research firm FactSet.

Penney's results for the full year reveal just how much the company is struggling to shore up its business. For the fiscal year, Penney lost $985 million, or $4.49 per share, compared with a loss of $152 million, or 70 cents per share, in fiscal 2011. And the company's revenue fell nearly a quarter, or 24.8 percent, to $12.98 billion from the previous year's $17.26 billion.

"It's the worst performance I have ever seen by a company in one year," said Walter Loeb, an independent retail consultant.

Wall Street hasn't been any happier than Main Street with Penney's changes. On the news of its quarterly results, which were reported after markets closed, Penney shares fell about 9 percent to about $19 in after-hour trading. In total, investors, who initially sent Penney shares soaring 24 percent to about $43 after the company announced the everyday pricing plan in late January of last year, have pushed them down by about half since early last year.

It's a disappointing turn of events for Johnson, the mastermind of Apple's successful retail stores who took the top job at Penney in November 2011. A couple of months later, on Feb. 1 of last year, Johnson launched a new pricing that was designed to wean customers off the markdowns they'd become accustomed to, but that ultimately eat into profits.

He got rid of the nearly 600 sales Penney offered each year for a three-tiered strategy that lowered prices in the store by 40 percent, offered monthlong discounts on some items and periodic clearance events. He also got rid of the word "sales" from the company's marketing.

But customers weren't responding to the changes, so Johnson tweaked his strategy a few times, including bringing back the word "sale" last summer. The latest change came this month when Penney began adding back more sales events and putting price tags on half of its merchandise to show customers how much they're saving by shopping at Penney.

In addition to those changes, Johnson has said that Penney is starting to see some positive results from its makeover of stores with sectioned-off shops that feature different brands. The company said the reception has been warm to the 10 mini-shops that it rolled out this fall, including those for Levi's brand and Penney's new JCP line of casual clothes. Other brands, including Joe Fresh, which has brightly colored clothes, will be rolled out in coming years.

But Johnson, who had previously said that the stores would remodeled by the end of 2015, on Wednesday backtracked a bit. "The customer will dictate the timing," he said.

That's not the only thing Johnson said would be left up to the customer. When asked by an analyst whether he still vows to return to sales growth this year, a promise he has made repeatedly and reiterated last November, Johnson appeared to leave the door open. "Ultimately, our return to growth will be dictated by our customer," he said.

Still, the worry on Wall Street is that Johnson won't be able to turn around business fast enough to finance the transformation of its stores. In November, Penney said that it would end last year with $1 billion in cash. Penney winded up ending the year with $930 million in cash, which was better than analysts had feared but below the company's target.

Penney said Wednesday that it had short-term access to $3 billion in short-term capital to finance its multiyear transformation. And customers like Ricky Rodriguez, from Fort Worth, Texas, offer hope that Penney's turnaround plan will work.

"I feel like the guy section is getting more hip," said the 27-year-old who recently bought a dress shirt for $25 at Penney. "I've been going there every other week."