Consumers and investors seem to want struggling, well-known retail brands to make a comeback. That's why Sears (OTC:SHLDQ) constantly got favorable headlines for results that were terrible. The company would find a couple of positive metrics in an otherwise dismal report, and the stock would jump -- for at least a few hours.
That's what's happening with J.C. Penney (NYSE:JCP). The company posted awful third-quarter results, but narrowed its loss, and investors pushed the stock higher (at least for a little while). It's easy to understand why people want the classic brand to survive, but very little in its report suggests it will.
How bad was it?
J.C. Penney saw its sales decrease by 10.% to $2.38 billion. It also reported comparable-store sales that dropped by 9.3%. If you adjust out the company's furniture and appliance businesses -- which it has exited -- same-store sales fell by "only" 6.6%.
The retailer did improve its net loss for the quarter from $151 million last year ($0.48 per share) to $93 million ($0.29 per share). Free cash flow came in at negative $518 million through the first nine months, a drop of $18 million during the same period in 2018.
CEO Jill Soltau, who took on a near-impossible job, spun the results as positive in her remarks in the earnings release. Of course, she has to do that -- but the reality is that the company has not significantly changed its trajectory.
"We are beginning to see results -- both in our numbers and how we operate as a business -- from the early implementation of our Plan for Renewal, which is focused on driving traffic, offering compelling merchandise, providing an engaging experience, fueling growth, and building a results-minded culture," she said. "Going forward, I am confident that delivering our strategy, coupled with our ongoing discipline and commitment to improving the foundational elements of our business, will return JCPenney to its rightful place in the retail industry."
You have to admire that optimism, but it does not reflect the company's reality. Losing roughly 10% of your customers and your sales is not a good thing, even when coupled with a slightly lower loss and less cash invested in inventory.
It's probably too late
Soltau's remarks sound a lot like the comments made by former Sears CEO Eddie Lampert every quarter. He would announce closures, new plans, and efforts for the company to shrink its way to health. None of those worked, and Sears has been dying a slow, painful death that may go on for years -- but the terminal diagnosis remains.
It's not entirely fair to compare Soltau to Lampert. She has better ideas, and may have succeeded if she had gotten the job sooner. It's possible she will be able to salvage some part of J.C Penney if she can find the cash needed to radically transform the business.
That cash won't be coming from operations, though, which makes the road ahead very difficult. The Q3 earnings report has a few minor signs that business is less bad, but that's a bit like hearing your terminal cancer is proceeding slower than expected. It's still going to kill you, you just have a little more time to say goodbye.