J.C. Penney Co Inc (JCP.N) on Friday rounded off another set of dismal earnings reports from department store chains, highlighting their struggle to adjust to the new normal for consumers: looking for better bargains and shopping online.
J.C. Penney posted a steeper-than-expected drop in same-store sales for the first quarter, mirroring reports from Macy's Inc (M.N), Kohl's Corp (KSS.N) and Nordstrom Inc (JWN.N) on Thursday.
Penney's shares tumbled roughly 10 percent to a record low. Nordstrom sank 9 percent. Macy's and Kohl's were off about 2 percent. Macy's was trading at its lowest since 2011.
Department stores have for years been struggling with declining mall traffic as well as tough competition from online retailers such as Amazon.com Inc (AMZN.O) and off-price stores such as TJX Cos Inc (TJX.N).
"The surprise for everybody is that these market share shifts are happening even faster than anyone else thought they would," said Morningstar analyst Bridget Weishaar.
Adding to department stores' problems in the latest February-April quarter was a delay in tax refunds in February that crimped spending, while an unusually warm weather in the same month hurt sales of winter wear.
Sales at Penney's stores open more than a year dropped 3.5 percent in the first quarter, much steeper than the 0.7 percent fall estimated by analysts polled by research firm Consensus Metrix.
The drop in apparel sales was bigger than the decline in the company's overall comparable store sales and that will continue through the year, Penney Chief Executive Marvin Ellison said.
"We have no great optimism that we're going to swing apparel to positive comps overall."
To be sure, the weakness at brick-and-mortar retailers is not indicative of a drop in consumer spending, but a change in what people are spending on and how they shop.
U.S. Commerce Department data has shown that sales at online retailers have outpaced sales at clothing stores almost every month for some time now.
Penney's net sales dropped 3.7 percent to $2.71 billion, declining for the third straight quarter and just short of the average analyst estimate of $2.77 billion, according to Thomson Reuters I/B/E/S.
To cope with slumping demand, Penney said in February that it would shut 130-140 underperforming stores and offer voluntary retirement to about 6,000 employees, following Macy's lead.
Like its rivals, Penney has also sought to speed up its supply chain and revamp how it replenishes stores. It is also counting on a boost from its higher-margin private brands business.
But the company said that costs related to store closures and severance packages led to its net loss more than doubling to $180 million in the first quarter and will dent gross margins in the current quarter.
"First quarter results undoubtedly represent a setback in the company's recovery plans," Neil Saunders, managing director of GlobalData Retail, said.
Penney, however, stood by its full-year same-store sales forecast, as did Macy's, Kohl's and Nordstrom.
But while Penney said sales could range between a drop of 1 percent and a rise of 1 percent and Nordstrom said sales could be flat at best, Macy's and Kohl's expect sales to decline.
"In general, the big takeaway is that the sector is in a state of secular decline," Morningstar's Weishaar said.
"There are way too many stores out there that look exactly like how they looked 30-40 years ago and that needs to change."
(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Savio D'Souza)