In hopeful sign, JC Penney Sept. sales not as bad

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By ANNE D'INNOCENZIO and MICHELLE CHAPMAN, Associated Press

NEW YORK (AP) — Shares of J.C. Penney Co. got a boost Tuesday after the struggling department store chain said that a key sales barometer wasn't as bad last month as it was in August.

The company also expects that it will have ample cash on hand at the end of the year.

The assurances from Penney marked the second time since late September that it said business was showing signs of improvement and tried to address worries about cash reserves. The company is seeking to calm investors who are growing pessimistic about a turnaround.

In the statement Tuesday, Penney, based in Plano, Texas, said that revenue at stores opened at least a year fell 4 percent in September from a year ago. The same measure fell 9.8 percent in August.

Revenue at stores open at least a year is a key gauge of a retailer's health because it excludes the potentially distorting effect of results from stores recently opened or closed.

Penney expects to see improving sales trends for the remainder of the year and also said that its online sales are strengthening.

Penney shares closed up 6 cents at $7.77 Tuesday. The stock is still off 68 percent over the past 12 months. And many analysts remained skeptical.

"I find nothing encouraging in this report," said David Tawil, co-founder and portfolio manager of Maglan Capital, which follows distressed companies. "Stemming the tide isn't enough." He noted that Penney is desperately marking down goods and it needs to show big gains in sales in the next year or it will run out of cash.

The retailer is trying to recover from a failed turnaround attempt spearheaded by former CEO Ron Johnson. Two weeks ago, the company said it planned to sell up to 96.6 million shares of common stock in a public offering, evidence the chain is looking to shore up its cash reserves ahead of the crucial holiday shopping season.

J.C. Penney Co. said Tuesday it anticipates more than $2 billion in year-end liquidity — a measure of its ready access to cash — after closing on a public stock offering of 84 million shares. The company said that the offering resulted in about $785 million in net proceeds. It said at the time that it will be using the proceeds from the offering for general corporate purposes.

It also said Tuesday that it remains current in payments to vendors.

Penney's board ousted Johnson in April after 17 months on the job and rehired the previous CEO, Mike Ullman. Under Ullman, Penney is bringing back frequent sales events that had been ditched and is restoring basic merchandise particularly store brands like St. John's Bay that were either phased out or eliminated by Johnson in a bid to attract more affluent, younger shoppers. Under Johnson, the company brought in trendy names like Betsey Johnson and focused on every day prices, eliminating hundreds of sales.

"Over the last six months, we have made significant strides and are now seeing positive signs in many important areas of the business in spite of what continues to be a difficult environment for consumers and retailers in general," said Ullman in a statement.

Ullman cautioned the company is still in the early stages of the turnaround.

Penney said that the improvement in sales at both its stores and online in September from a year ago was due to better inventory levels in key items and having the sizes its shoppers want. Traffic improved at its stores not located in malls during September's last two weeks, but Penney said that its mall stores are still contending with weak traffic levels.

Heavy promotions to get rid of merchandise from the first two quarters of the year are also hurting profitability.

And fixing the new home departments has been more challenging than the company anticipated.

Under Johnson, Penney had overhauled its home areas in about 500 of the 1,100 Penney stores, bringing in new names like Jonathan Adler and Michael Graves. The home areas were reopened in May. But Penney said in August that the overhauled home areas were not doing well. Penney is now working to have a more balanced mix of modern and traditional home furnishings at lower prices and making the shopping layout easier for shoppers.

Penney said Tuesday that it has reopened "all but a handful" of its new home departments. But home sales are still weak at its stores.

Ullman said Tuesday that reconnecting with customers and getting them into stores is a top priority for the chain.

"We are all dedicated to continuing the momentum underway and restoring J.C. Penney to a leadership position in American retail. It will take time, but we are on the right path with a sound strategy and achievable goals," he said.

But analysts remain concerned. Sterne Agee analyst Charles Grom on Tuesday downgraded Penney's rating to "Hold" from "Buy" and cut its price target in half, to $9 from $18. Grom said in a client note that he fears former CEO Johnson may have permanently turned off the retailer's core customer.

Citi Research's Deborah Weinswig said she is still concerned that suppliers continue to be on edge. She cited that one supplier, ABS by Allen Schwartz, ended its exclusive deal with Penney last month after five years. Officials at ABS confirmed that it was severing its relationship.

The company is slated to report its fiscal third-quarter results next month.

Penney's shares rose 9 cents, to $7.80 in late day trading. Shares have lost 82 percent of their value since early February of 2012 when investor enthusiasm was high about Johnson's turnaround plan. Since the beginning of this year, shares have been down 61 percent.

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