Can an Apple a day reinvigorate?

By KAREN TALLEY And TESS STYNES

J.C. Penney Co.'s new chief executive, Ronald Johnson, said Monday that he is out to "re-imagine" the department store, using current operations as his starting point.

In his first public comments since becoming Penney's CEO on Nov. 1, Mr. Johnson said he plans to foster an environment in which employees "think differently and work creatively" to turn the chain, which reported a loss for the fiscal third quarter, into a major innovative force.

"I get more excited every day about the potential of J.C. Penney," the former retail chief of Apple Inc. told analysts on a conference call.

Mr. Johnson said that in meetings with employees, he tells them, "I'm here to transform."

"I shared with them that as America's first store, it is time to assert leadership, reclaim our birthright and become America's favorite store," he added.

Mr. Johnson also said Michael Kramer, chief executive at Kellwood Co., a fashion-brand designer, will join Penney as chief operating officer on Dec. 5. Daniel Walker is heading Penney's human-resources department as chief talent officer, a title he held at Apple.

Mr. Johnson declined to discuss strategy, saying he would provide a much fuller view of his vision at an analyst meeting Penney plans to hold in New York in January.

For the third-quarter ended Oct. 29, J.C. Penney swung to a loss, amid higher restructuring and management-transition charges. The company also said it expects a lackluster holiday season, compared with its peers. "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 Executive Chairman Myron E. "Mike" Ullman, who stepped down this month as CEO.
In early afternoon trading Monday on the New York Stock Exchange, Penney shares were down 1.3% at $33.48.

Penney projected per-share earnings of $1.05 to $1.15 for the current quarter, with same-store sales flat to slightly higher. It also expects total sales will be 2.5 to 3 percentage points below same-store sales levels, owing to its exit from the catalog business.

Analysts polled by Thomson Reuters recently forecast profit of $1.14 for the current quarter and a revenue decline of 2% to $5.62 billion.

For its third quarter, Penney posted a loss of $143 million, or 67 cents a share, compared with a year-earlier profit of $44 million, or 19 cents a share. Excluding restructuring and management-transition charges, the company had earnings of 11 cents a share in the quarter just ended. Last month, Penney cut its guidance to earnings of 10 cents to 15 cents, excluding the higher restructuring expenses.  When also excluding pension costs, the company's per-share earnings fell to 18 cents from 34 cents a year earlier.

Gross margin, a gauge of profitability for products sold, fell to 37.4% from 39% amid lower sales and a higher level of promotions. The retailer sees gross margin falling "modestly" in the current period.
The company recently reported that total sales fell 4.8% to $4 billion mostly reflecting its exit from its catalog and catalog outlet businesses as same-store sales declined 1.6%.

Penney has been in heated competition with rivals Macy's Inc. and Kohl's Corp. Macy's started off the third-quarter reporting season for major retailers last Wednesday, posting strong earnings on continued momentum from its sales strategy that focuses on local tastes. Kohl's followed on Thursday, also posting strong profits, with a boost from its focus on exclusive and brand names.

(we'll check back in January)