NEW YORK - Six months after J.C. Penney Co. (JCP) launched a bold new pricing plan, customers still aren't buying it.
The mid-price department store chain reported a bigger-than-expected loss and plummeting sales during the second quarter, as its customers remain confused by the new pricing strategy that ditched hundreds of sales in favor of every day lower prices. The bleak performance marks the second straight quarter of steep sales declines since the plan was introduced Feb. 1.
The company also withdrew its profit guidance for the year. Its shares tumbled more than 8 percent in premarket trading.
Penney's poor results, released Friday, underscore how difficult it is for a company to change the way consumer behave. In a still struggling economy, shoppers are still looking for racks of "70 percent off" sales signs and coupons. The latest financial performance also tests the patience of investors and adds more pressure on its new CEO and former Apple Inc. executive Ron Johnson to turn things around at the retailer.
Under Johnson, Penney is transforming everything from prices to what it keeps in stock and the store experience. But the riskiest move has been its pricing plan, which is turning out to be an even tougher sale to shoppers than previously expected.
"'We have now completed the first six months of our transformation, and while business continues to be softer than anticipated, we are confident the transformation is on track," said Johnson in a statement." The transition from a highly promotional business model to one based on everyday value will take time and we will stay the course."
In May, Penney's stock plunged 20 percent in its biggest decline in four decades after the retailer posted a larger-than expected quarterly adjusted loss of 25 cents and a 20.1 percent drop in revenue in its first quarter because of the poor reception from shoppers.
Things got even worse in the second quarter as Penney it scrambled to backpedal and shift its marketing strategy to get shoppers back in the store.
The department store, based in Plano, Texas, says that it lost $147 million, or 67 cents per share, in the quarter ended July 28. That compares with net income of $14 million, or 7 cents per share, in the year-ago period.
Revenue tumbled almost 23 percent to $3.02 billion from $3.9 billion a year ago. Revenue at stores opened at least a year fell 21.7 percent, worse than the 18.9 percent drop in the first quarter.
Its adjusted loss excluding unusual items was 37 cents per share. Analysts had expected a 26 cent loss on revenue of $3.2 billion.
The company said that its gross profit margins fell to 33. 2 percent in the quarter, down from 38.3 percent in the year-ago period.
Its shares tumbled $1.87, or 8.5 percent, to $20.23 in premarket trading. Investors, who initially sent Penney shares soaring 24 percent to about $43 after Johnson announced the pricing plan in late January, have pushed them down almost 50 percent since then.
Penney on Feb. 1 began using a three-tiered pricing approach that called for consistently lower daily prices that were 40 percent below last year, deeper monthlong sales on specific items and periodic discounts that are even more generous throughout the year. But starting Aug. 1, Penney has eliminated the monthly sales events and increased the frequency of the periodic sales to every Friday. These had been called "Best Price" sales but are now being called "clearance." It's tweaking its advertising to better explain the pricing change.
Penney is keeping "Every Day" low prices, which has accounted for about 70 percent of sales since the company began the new strategy.
Johnson had said the new approach should make the pricing plan easier for customers to understand.
"We thought, 'Why are we trying to teach customers new language to shop?'" Johnson said in a recent interview with The Associated Press. "We're just trying to be straightforward."
To go along with the new pricing, Penney will tweak its ads. That will include inserts in newspapers every Friday during the back-to-school season that will highlight specific products like jeans. TV ads have been airing that tout free haircuts that the stores are offering for students during August.
The new ads are in stark contrast to the spots that Penney rolled out at first to introduce its new pricing plan. The "fair and square" brand campaign featured TV ads with dogs, kids and bright colors - but little explanation of Penney's pricing.
Some analysts believe Penney will have an easier time attracting shoppers once it makes the stores more inviting. Starting this fall, almost 50 percent of its merchandise will be new - the result of it dumping some brands while redesigning others. Among some of the new names shoppers will see are Vivienne Tam and Betsey Johnson who will be selling affordable versions to Penney. Additionally, the company plans to launch a new brand under the "JCP" label this fall.
Penney just launched shops for Levi's and its private label jeans brand Arizona. It plans a total of 100 shops within each of its stores by 2015 that will either focus on one brand or a variety of labels. The company is also planning to add areas in its stores called Town Squares to offer services and advice.
But there's even a wrinkle in Penney's plan to jazz up the stores. Last month, Macy's won a preliminary injunction against Martha Stewart Living that would prevent it from selling some of its products like cookware and kitchen utensils. Penney has been counting on the popularity of the Martha Stewart brand to revitalize its business.
Penney said Friday it no longer expects to meet its earnings guidance for 2012. It had expected a profit of $2.16 per share. Analysts expected the company to earn $1.26 per share for the year.