NEW YORK ? J.C. Penney Co.'s new CEO Ron Johnson, a former Apple executive, told analysts Monday that the department store chain is rethinking everything it's doing ? from pricing to products. The message comes as the retailer struggles to turnaround its business after reporting a quarterly loss.
Johnson's comments offer valuable insights into the next chapter for Penney's, which like many mid-priced retailers, has been hurt because its middle-income consumers have been especially hard hit by the challenges of the weak economy. The Plano, Texas company has added popular brands like European clothing line MNG by Mango and Sephora cosmetics, but still struggles to make its stores more inviting places to shop.
Johnson's address comes on the day the company reported a third-quarter net loss due to costs related to restructuring, its management transition and a voluntary retirement program. The company also gave a fourth-quarter outlook that was below Wall Street forecasts.
"I am working with our team to rethink, really to reimagine everything we do," said Johnson, who was with Apple for 11 years before taking the CEO helm from Myron Ullman III. "I am investing considerable energy in a strategic review of our product, our pricing and our promotional strategies in order to create an exceptional, a new, a better way for people to shop."
Johnson, who took over merchandising and marketing responsibilities on Nov.1 and will assume the remaining CEO functions on Feb. 1, said during the conference call that he told employees on his first day of work that he was here to "transform," not to improve" the business.
Johnson, who joined the board in August and who has been traveling around the world visiting stores and partners since then, is already fast putting his stamp on the company.
As part of his changes, Penney on Monday announced that it has hired two of Johnson's former Apple colleagues. Daniel Walker, former chief talent officer at Apple, will start on Wednesday as Penney's chief talent officer, who will start Wednesday. And Michael Kramer, former president and CEO at Kellwood Co. who also worked at Apple, will be the company's chief operating officer, effective Dec. 5. That follows Penney's move last month to hire Target's top marketing executive Michael Francis as the company's new president.
Johnson and his revamped management team have a big task ahead of them.
Penney has closed stores outlets and a call center and discontinued its catalog business, while its middle-class customers have cut back on spending as they face high unemployment and higher costs for household goods. Penney's revenue at stores opened at least a year ? an indicator of a retailer's health ? fell 1.6 percent during the third quarter. That compares with increases of 4 percent at Macy's and 2.1 percent at Kohl's for the same period.
Penney said Monday it lost $143 million, or 67 cents per share, for the three months ended Oct. 29. That compares with net income of $44 million, or 19 cents per share, in the year-ago period. The latest results include costs of $179 million, or 51 cents per share, for a voluntary early retirement program and $27 million, or 10 cents per share, related to management changes.
Adjusted earnings without the one-time items amounted to 11 cents per share, topping the 9 cents per share that analysts expected. Revenue slipped almost 5 percent to $3.98 billion from $4.19 billion largely reflecting the discontinuation of its catalog and catalog outlet business. That was in line with analysts' expectations for revenue of $4 billion.
Since Ullman became CEO in December 2004, Penney has tried to become hipper. The company added more trendy offerings, including Sephora cosmetics boutiques and lines such as Cindy Crawford Style home furnishings and MNG by Mango. And last year, it became the only U.S. retailer to sell Liz Claiborne and Claiborne women's wear when Liz Claiborne agreed to sell to Penney the domestic and international trademark rights for both its Liz Claiborne brands and the U.S. and Puerto Rico trademark rights for the Monet jewelry brand.
Ullman told analysts that Sephora and other new fashion brands have done well, but shoppers have delayed buying the humdrum basics until they need them.
"While our more affluent customers continued to respond well to J.C. Penney's attractions, the moderate customer continues to have limited discretionary spending capability, and that was apparent during the quarter," said Ullman, who will serve as executive chairman during Johnson's three-month transition into the CEO role.
Going forward, many experts have been looking for Johnson, who led Apple's retail operations, to bring some of the magic of Apple's locations to Penney's department stores. So far, Johnson hasn't said much about plans to revamp Penney's more than 1,100 department stores.
But the company, which has been forced to discount heavily to get its customers to buy during the economic downturn, has said it will launch a new pricing strategy in the spring. Johnson said the chain will reveal details of the pricing tactic as well as other strategies to analysts in late January.
"My approach will be to only talk publicly about our actions at the time we are taking them, not before," Johnson said.
For the fourth quarter, Penney expects revenue at stores opened at least a year to be between unchanged to slightly up from a year ago.
It expects earnings for the fourth quarter to be between 64 cents to 74 cents per share, including restructuring and management transition charges. Excluding these charges, earnings are expected to be in the range of $1.05 per share to $1.15 per share. Analysts expected $1.17 per share, according to Factset.
The guidance doesn't include the financial impact expected to be incurred in the fourth quarter as the company executes changes to its pricing strategies. The company said it will disclose the effect during the fourth-quarter earnings call with analysts.
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