JCPenney Company, Inc. (a Fair360, formerly DiversityInc Noteworthy Company) has announced financial results for its fiscal fourth quarter and full year ended Feb. 3, 2018. Comparable sales increased 2.6 % for the fourth quarter and increased 0.1 % for full year 2017.
Fourth quarter earnings per share was $0.81 and full year net loss per share was ($0.37). Fourth quarter adjusted earnings per share was $0.57 and full year adjusted earnings per share was $0.22. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
Marvin R. Ellison, chairman and chief executive officer said, “We are encouraged by our results for the fourth quarter and for fiscal 2017. Through the hard work and dedication of the entire JCPenney team, we delivered our second consecutive year of positive adjusted earnings. For 2017, we improved adjusted earnings per share by 175 %, reduced our outstanding debt levels by over $600 million and generated over $200 million of free cash flow. During the fourth quarter, we delivered our strongest positive sales comps and achieved our largest gross margin improvement for the year. Our fourth quarter gross margin improvement, combined with our continued commitment to expense discipline, helped us generate adjusted earnings per share of $0.57 for the quarter.”
Ellison continued, “In 2018, we will intensify our market share efforts in Appliances, Mattresses and Furniture, while continuing to take steps to modernize our apparel assortment and omni-channel. Our strategy and plan is clear and consistent, and we remain focused on two critical factors – to operate the business for growth and deliver profitable earnings. I would like to thank our nearly 100,000 associates around our company for their hard work and more importantly, for their commitment to JCPenney.”
Fourth Quarter 2017 Results
Total net sales for the 14 weeks ended Feb. 3, 2018 increased 1.8 % to $4.03 billion compared to $3.96 billion for the 13 weeks ended Jan. 28, 2017. Comparable sales increased 2.6 % in the fourth quarter and were on the same 13 week basis as the fourth quarter last year.
Jewelry, Home, Sephora, Footwear and Handbags and Salon were the Company’s top performing divisions during the quarter. Geographically, the Southeast and Gulf Coast were the best performing regions of the country.
Cost of goods sold, which excludes depreciation and amortization, was $2.68 billion, or 66.4 % of sales, compared to $2.65 billion, or 66.9 % of sales in the same period last year. The improvement was primarily driven by decreased promotional activity during the quarter resulting from an improved inventory position. This improvement was partially offset by the continued growth in the Company’s online and major appliance businesses and higher shrink rates.
SG&A expenses were $943 million compared to $925 million for the same period last year. As a percentage of sales, SG&A expenses were 23.4 % and flat compared to last year. Reductions primarily in store controllable costs and marketing spend were partially offset by lower credit income and higher incentive compensation.
Net income was $254 million, or $0.81 per share, compared to net income of $192 million, or $0.61 per share in the same period last year. The improvement was primarily due to a $75 million tax reform benefit recorded in the fourth quarter this year.
Adjusted net income was $179 million, or $0.57 per share, for the fourth quarter this year. Adjusted net income for the fourth quarter last year was $202 million, or $0.64 per share, which included a gain of $62 million, or $0.20 per share, associated with the sale of the Company’s home office.
Full Year 2017 Results
Total net sales decreased (0.3) % to $12.51 billion compared to $12.55 billion last year. Comparable sales increased 0.1 % for full year 2017. The slight decline in total net sales was primarily due to store closures in 2017, most of which closed in the first half of the year, and was partially offset by incremental sales for the 53rdweek.
For the year, cost of goods sold, which excludes depreciation and amortization, was $8.17 billion, or 65.4 % of sales, compared to $8.07 billion, or 64.3 % of sales last year. This increase was primarily driven by the liquidation of both closed store and slow-moving inventory, the continued growth in the Company’s online and major appliance businesses and higher shrink rates.
SG&A expenses declined 2 % or $70 million to $3.47 billion, or 27.7 % of sales, a decrease of 50 basis points as a percentage of sales compared to last year. These savings were primarily driven by reductions in store controllable costs and marketing efficiencies, which were partially offset by lower credit income and higher incentive compensation.
Net loss was ($116) million, or ($0.37) per share, compared to net income of $1 million, or $0.00 per share last year. This reduction was driven primarily by restructuring charges associated with the fiscal 2017 store closures and voluntary early retirement program.
Adjusted net income increased $44 million to $68 million, or $0.22 per share, compared to adjusted net income of $24 million, or $0.08 per share, last year.
Adjusted EBITDA was $972 million compared to $1.01 billion last year.
Inventory at year-end was $2.76 billion, a decrease of 3.2 % compared to last year-end. Capital expenditures for the year, net of landlord allowances, were $375 million. Free cash flow was a positive $213 million for full year 2017, an increase of $210 million versus last year.
Cash and cash equivalents at the end of year were $458 million. During fiscal 2017, the Company reduced its outstanding debt position by over $600 million. The Company ended the fiscal year with liquidity in excess of $2.3 billion.
Outlook
The Company’s 2018 full year guidance is as follows:
- Comparable store sales: expected to be 0.0 % to 2.0 %; and
- Adjusted earnings per share1: expected to be $0.05 to $0.25.
Starting in the first quarter of fiscal 2018, the Company will adopt the new accounting standards, which relate to revenue recognition and pension accounting. The Company expects the impact from the accounting changes will not have a material impact on its 2018 full year earnings results.
[1]A reconciliation of non-GAAP forward-looking projections to GAAP financial measures is not available as the nature or amount of potential adjustments, which may be significant, cannot be determined at this time.
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