JCPenney Reports First Quarter 2019 Financial Results
Inventory Reduced 16.0 % From Prior Year; Company Confirms Expectations of Positive Annual Free Cash Flow
PLANO, Texas, May 21, 2019 (GLOBE NEWSWIRE) -- J. C. Penney Company, Inc. (NYSE: JCP) today announced financial results for its fiscal first quarter ended May 4, 2019. Net loss for the quarter was $154 million or ($0.48) per share. Comparable sales decreased 5.5 % for the first quarter. The exit of the major appliance and in-store furniture categories in the first quarter had a combined negative impact of 20 basis points to comparable sales. “I am pleased with the strides we've made in setting key objectives, building our senior leadership team, executing significant changes in our assortment, such as eliminating major appliances, and mobilizing the entire organization around our priorities. We have made good progress on each of our immediate action steps highlighted last quarter, including our continued efforts to reduce and enhance our inventory position, which resulted in a 16 % reduction in our inventory and a meaningful improvement in our free cash flow this quarter. As our inventory rationalization effort continues, we are testing a number of strategies around optimal inventory levels and assortment choice counts with a goal of delivering an improved experience for our customers and maximizing our return on investment,” said Jill Soltau, chief executive officer of JCPenney. “Retail is a dynamic business with many touchpoints that together lead back to the customer experience. We are working to reestablish the fundamentals of retail at JCPenney, and at the same time, we are building capabilities to satisfy the wants and expectations of our customers. In everything we do, we are putting the customer at the center. My commitment is that we will make sound, strategic decisions backed by data and will always be rooted in delivering on our customers’ wants and expectations. Our current efforts are focused around two parallel paths. First, we are continuing to map out a comprehensive long-term strategy for JCPenney, which we look forward to sharing in the coming months. Second, we are working quickly to build a talented and accomplished team of retail experts. JCPenney is an American retail icon that is very important to all of our stakeholders, and I am encouraged by the early signs I am seeing in our business as we work to realize the potential that lies ahead,” Soltau added. The Company adopted the provisions of the new Lease Accounting Standard starting in the first quarter of fiscal 2019. The financial statement amounts for first quarter of fiscal 2019 reflect the prospective adoption of the new standard and prior period financial statement amounts remain in accordance with old accounting standards. For the first quarter ended May 4, 2019, total net sales decreased 5.6 % to $2.44 billion compared to $2.58 billion for the quarter ended May 5, 2018. Comparable sales decreased 5.5 % for the quarter. The exit of the major appliances and in-store furniture categories had a combined negative impact of 20 basis points to comparable sales in the quarter. Credit income was $116 million for the first quarter this year compared to $87 million in the first quarter last year. Fine Jewelry, Children’s Apparel, Women’s Apparel and Men’s Apparel were the Company’s top performing divisions during the quarter. Cost of goods sold, which excludes depreciation and amortization, was $1.63 billion, or 66.8 % of sales, compared to $1.71 billion, or 66.3 % of sales in the same period last year. The increase as a rate of sales was primarily driven by the negative impact from the liquidation of major appliance and furniture floor model inventory, offset partially by an improvement in both store and online non-clearance selling margins. The exit of the major appliance and in-store furniture categories in the first quarter had a combined negative impact of 70 basis points to cost of goods sold. SG&A expenses were $856 million, or 35.1 % of net sales this year compared to $826 million, or 32.0 % of net sales, last year. Last year, SG&A expenses included approximately $40 million in expense offsets related to the sale of a leasehold interest as well as the reversal of previously accrued risk insurance reserves. Additionally, in connection with the adoption of the new Lease Accounting Standard, SG&A expenses in the first quarter this year included approximately $5 million related to the Company’s home office lease. Last year, the home office lease related expense was recorded in both depreciation and amortization and interest expense. For the first quarter, the Company’s net loss was $154 million, or ($0.48) per share, compared to a net loss of $78 million, or ($0.25) per share in the same period last year. Adjusted net loss was $147 million, or ($0.46) per share, compared to an adjusted net loss of $69 million, or ($0.22) per share, last year. Cash and cash equivalents at the end of the first quarter were $171 million. Operating cash flow was a use of $205 million, a $149 million improvement to last year. Free cash flow was a use of $268 million, a $153 million improvement to last year. Inventory at the end of the first quarter was $2.48 billion, down 16.0 % compared to the end of the first quarter last year. The Company ended the first quarter this year with liquidity of approximately $1.75 billion. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release. Outlook The Company currently expects free cash flow1 to be positive for fiscal year 2019. [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 now. 2019 First Quarter Earnings Conference Call Details Telephone playback will be available for seven days beginning approximately two hours after the conclusion of the conference call by dialing (855) 859-2056, or (404) 537-3406 for international callers, and referencing 9029099 conference ID. Investors and others should note that we currently announce material information using SEC filings, press releases, public conference calls and webcasts. In the future, we will continue to use these channels to distribute material information about the Company and may also utilize our website and/or various social media to communicate important information about the Company, key personnel, new brands and services, trends, new marketing campaigns, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed material; therefore, we encourage investors, the media, our customers, business partners and others interested in our Company to review the information we post on our website as well as the following social media channels: Facebook (https://www.facebook.com/jcp) and Twitter (https://twitter.com/jcpnews). Any updates to the list of social media channels we may use to communicate material information will be posted on the Investor Relations page of the Company's website at www.jcpenney.com. Media Relations: Investor Relations: About JCPenney: Forward-Looking Statements ### J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS
SUMMARY STATEMENTS OF CASH FLOWS
Reconciliation of Non-GAAP Financial Measures We report our financial information in accordance with generally accepted accounting principles in the United States (GAAP). However, we present certain financial measures and ratios identified as non-GAAP under the rules of the Securities and Exchange Commission (SEC) to assess our results. We believe the presentation of these non-GAAP financial measures and ratios is useful in order to better understand our financial performance as well as to facilitate the comparison of our results to the results of our peer companies. In addition, management uses these non-GAAP financial measures and ratios to assess the results of our operations. It is important to view non-GAAP financial measures in addition to, rather than as a substitute for, those measures and ratios prepared in accordance with GAAP. We have provided reconciliations of the most directly comparable GAAP measures to our non-GAAP financial measures presented. The following non-GAAP financial measures are adjusted to exclude restructuring and management transition charges, other components of net periodic pension cost/(income), the (gain)/loss on extinguishment of debt and the tax impact for the allocation of income taxes to other comprehensive income items related to our pension plans and interest rate swaps. Unlike other operating expenses, restructuring and management transition charges, other components of net periodic pension cost/(income), the (gain)/loss on extinguishment of debt and the tax impact for the allocation of income taxes to other comprehensive income items related to our pension plans and interest rate swaps are not directly related to our ongoing core business operations, which consist of selling merchandise and services to consumers through our department stores and our website at jcpenney.com. Further, our non-GAAP adjustments are for non-operating associated activities such as closed store impairments included in restructuring and management transition charges. Additionally, other components of net periodic pension cost/(income) is determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond our control, such as market volatility. We believe it is useful for investors to understand the impact of restructuring and management transition charges, other components of net periodic pension cost/(income), the (gain)/loss on extinguishment of debt and the tax impact for the allocation of income taxes to other comprehensive income items related to our pension plans and interest rate swaps on our financial results and therefore are presenting the following non-GAAP financial measures: (1) adjusted net income/(loss) before net interest expense, income tax (benefit)/expense and depreciation and amortization (adjusted EBITDA); (2) adjusted net income/(loss); and (3) adjusted earnings/(loss) per share-diluted. ADJUSTED EBITDA, NON-GAAP FINANCIAL MEASURE: The following table reconciles net income/(loss), the most directly comparable GAAP measure, to adjusted EBITDA, a non-GAAP financial measure:
ADJUSTED NET INCOME/(LOSS) AND ADJUSTED EARNINGS/(LOSS) PER SHARE-DILUTED, NON-GAAP FINANCIAL MEASURES: The following table reconciles net income/(loss) and earnings/(loss) per share-diluted, the most directly comparable GAAP measures, to adjusted net income/(loss) and adjusted earnings/(loss) per share-diluted, non-GAAP financial measures:
Reconciliation of Non-GAAP Financial Measures Free cash flow is a key financial measure of our ability to generate additional cash from operating our business and in evaluating our financial performance. We define free cash flow as cash flow from operating activities, less capital expenditures, plus the proceeds from the sale of operating assets. Free cash flow is a relevant indicator of our ability to repay maturing debt, revise our dividend policy or fund other uses of capital that we believe will enhance stockholder value. Free cash flow is considered a non-GAAP financial measure under the rules of the SEC. Free cash flow is limited and does not represent remaining cash flow available for discretionary expenditures due to the fact that the measure does not deduct payments required for debt maturities, payments made for business acquisitions or required pension contributions, if any. Therefore, it is important to view free cash flow in addition to, rather than as a substitute for, our entire statement of cash flows and those measures prepared in accordance with GAAP. FREE CASH FLOW, NON-GAAP FINANCIAL MEASURE: The following table sets forth a reconciliation of cash flow from operating activities, the most directly comparable GAAP measure, to free cash flow, a non-GAAP financial measure, as well as information regarding net cash provided by/(used in) investing activities and net cash provided by/(used in) financing activities:
(1) Net cash provided by/(used in) investing activities includes capital expenditures and proceeds from sale of operating assets, which are also included in our computation of free cash flow.
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