J.C. Penney stock price plunge biggest in four decades
NEW YORK – Wall Street doesn’t seem to like J.C. Penney’s new everyday low pricing any better than Main Street does.
The department store chain’s stock plunged nearly 20 percent on Wednesday – the biggest decline in at least four decades, including the 1987 stock market crash. The drop came a day after Penney said it would stop paying dividends and blamed its large first-quarter loss on a poor reception from shoppers for its strategy of getting rid of hundreds of sales each year in favor of offering predictable low prices every day.
The plan, rolled out Feb. 1, aims to stop the cycle of heavy discounting – and discourage customers from waiting for sales to shop. But the reaction by investors and shoppers shows how difficult it will be for Penney to change the mindset of consumers who have been conditioned to expect blockbuster deals from Penney during the economic downturn.
It also puts more pressure on new CEO Ron Johnson, a former Apple executive who is trying to transform Penney from a has-been to a retail darling. The same investors who initially supported the man who masterminded both Apple’s successful retail stores and Target’s cheap chic strategy prior to that, now seem to be losing confidence in Johnson’s plan.
“The honeymoon is definitely over for Johnson,” said Brian Sozzi, chief equities analyst at NBG Productions, an independent research firm. “He sold the (pricing) story hard.”
Penney did not return calls seeking comment, but Johnson asked investors to be patient during a meeting with them on Tuesday. He acknowledged that Penney has a long way to go to convince shoppers not to wait for sales.
Going forward, he said the company will do more to communicate the benefits of the new pricing strategy to shoppers in ads.
The first sign that Penney’s new pricing plan wasn’t resonating with customers came last week when Macy’s CFO Karen Hoguet told analysts that sales were rising at her company’s stores that share malls with Penney stores.
Then, on Tuesday, J.C. Penney Co. reported that it lost $163 million, or 75 cents a share, in the three months ended April 28, compared with a profit of $64 million, or 28 cents a share, a year earlier.
Revenue dropped 20 percent to $3.15 billion for the quarter as customer traffic slipped 10 percent. Meanwhile, revenue at stores open at least a year — a comparison used to measure a retailer’s health — fell 18.9 percent. That’s much steeper than the 11.4 percent drop Wall Street was expecting.
On Wednesday, a day after Penney reported the disappointing results, its stock fell 19.7 percent, or $6.57, to close at $26.75.
That’s the largest percentage drop since at least January 1972, when FactSet’s daily stock price records begin. On Oct. 19, 1987, Penney’s shares slid 19.2 percent to $19.50.