Penney, May struggling in retail
By Rachel Katz
Bloomberg News Service
J.C. Penney Co. broke even in the second quarter after catalog sales increased for the first time in three years. May Department Stores Co. posted its first loss in more than a decade because of expenses to close more than a third of its Lord & Taylor chain.
J.C. Penney, the nation's No. 2 department store operator, issued a statement saying it had a per-share loss of 2 cents after the payment of preferred dividends. In the year-earlier period, the company had a net loss of $6 million, or 5 cents.
May's second-quarter net loss was $110 million, or 39 cents.
Department store companies such as J.C. Penney and May have struggled to retain customers while discounters such as Target Corp. offer designer clothing and other merchandise at lower prices. J.C. Penney, based in Plano, Texas, increased its print advertising in the quarter, helping sales at department stores to rebound from a drop in the first quarter.
"The department store business is a terrible business," said Abhay Deshpande, an analyst at First Eagle Funds, whose roughly $7.5 billion in assets include shares of May. "It's a mature format. You aren't getting growth out of it."
U.S. retailers' July sales rose at the fastest pace in 13 months as shoppers bought summer clothing and seasonally discounted goods.
Discount chains like Wal-Mart Stores Inc. and Target led those sales, according to Bank of Tokyo-Mitsubishi Ltd., which released results of its index of more than 80 retailers last week.
Wal-Mart, the world's largest retailer, said it expected to report tomorrow that profit from continuing operations rose to about 52 cents a share from net income of 46 cents.
Penney revenue up 1.6%
J.C. Penney's revenue rose 1.6 percent to $7.31 billion in the quarter ended July 26 as clearance sales contributed to a 2.1 percent gain at department stores open for at least a year.
Sales at the catalog and Internet unit rose 3.9 percent, with Internet sales surging 60 percent.
The company also had a gain from selling stores.
J.C. Penney expects department store sales to continue to improve in the second half, while profit from its Eckerd drugstore chain is projected to be below last year's level.
"We like what we're seeing at the department stores," said Bill Dreher, an analyst with Deutsche Bank, who rates the shares "hold" and doesn't own any personally. "For this stock to work, we need to see a turn in the Eckerd division."
J.C. Penney doesn't break out the catalog results from the department store sales, which account for about half of the company's revenue.
The company had been expected to lose 5 cents a share, the average estimate of analysts surveyed by Thomson Financial.
Included in the results was a gain of about $30 million from selling some stores and expenses of $24 million to close the locations and restructure catalog operations.
May's first loss since '92
May had net income of $69 million, or 22 cents, a year earlier. Sales in the period ended Aug. 2 fell 1 percent to $3 billion, the company said in a statement.
This was the first loss since 1992 for May, which is closing 32 Lord & Taylor stores and firing 3,700 workers to focus on profitable locations. Sales dropped for the fifth straight quarter as shoppers turned to lower-price chains, such as Kohl's Corp., with locations in shopping centers that are more convenient than regional malls.
Excluding the expenses related to the closings and job cuts, May said it would have earned 30 cents a share. On that basis, analysts surveyed by Thomson Financial expected the company to report profit of 27 cents a share.
