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J.C. Penney Posts Slower Sales Decline on Ullman Plan

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J.C. Penney Co. (JCP) posted second-quarter sales that fell more slowly than a year earlier, showing Chief Executive Officer Mike Ullman is making progress as hedge-fund manager J. Kyle Bass bets on a comeback by the department-store chain.

Revenue in the quarter ended Aug. 3 fell 12 percent to $2.66 billion, the Plano, Texas-based company said today in a statement. That’s less than the 23 percent drop in the same period last year. Sales at stores open at least a year slid 12 percent, compared with a 22 percent decline a year earlier.

The results show Ullman may be starting to undo the damage from former CEO Ron Johnson’s failed overhaul, which centered on doing away with sales events and remaking stores into collections of boutiques. Bass, who focuses on corporate turnarounds, has accumulated a long position in J.C. Penney over the past two weeks by buying the company’s secured loans, according to a person familiar with the matter, who asked not to be named because the information is private.

“It’s not the disaster some thought it would be,” Liz Dunn, an analyst at Macquarie Group in New York, said in an interview on Bloomberg Television. She rates the shares neutral, the equivalent of a hold.

The net loss in the quarter expanded to $586 million, or $2.66 a share, from a deficit of $147 million, or 67 cents, a year earlier, the company said.

J.C. Penney rose 3.1 percent to $13.63 at 8:18 a.m. in New York. The shares fell 33 percent this year through yesterday, compared with a 15 percent gain for the Standard & Poor’s 500 Index.

Bass Bet

Bass also has sold a type of insurance called credit-default swaps to other investors that pays off only if the company defaults on its debts, an event he considers unlikely, said the person.

J.C. Penney said it ended the quarter with about $1.54 billion in cash, more than the about $1.5 billion the company said earlier this month it would have. The retailer said today it expected to end the year with more than $1.5 billion in liquidity.

J.C. Penney is working on its turnaround amid what has proven to be a difficult quarter for many retailers. Macy’s Inc. (M) posted its first sales drop since 2010 and its profit trailed analysts’ estimates for the first time since 2007. Wal-Mart Stores Inc. last week said earnings for the rest of the year would be less than it previously expected as consumers were reluctant to make discretionary purchases.

CIT Report

J.C. Penney’s executives also have had a tumultuous couple of weeks. The company on Aug. 1 was forced to deny a report that CIT Group Inc. had stopped funding some of its vendors. Analysts including JPMorgan Chase & Co.’s Matthew Boss followed the retailer’s statement with reports saying that it was using so much cash it may need to seek more outside funds by the end of the year.

Then Bill Ackman, a director and the chain’s largest investor, publicly sparred with his fellow board members over his push to replace Ullman sooner than they wanted. The argument ended with Ackman resigning from the board and reaching an agreement in which he can start selling his stake with company approval in November.

Under Ullman, J.C. Penney has ramped up discounts, run ads apologizing to the chain’s shoppers and tried to improve customer service by adding cash registers.

Johnson worked to attract younger and more affluent consumers with higher priced goods while jettisoning several brands, cutting back on the range of sizes offered in stores and revamping the home section with designer goods and furniture.

The strategies, along with eliminating most discounting, failed to bring enough new shoppers to make up for the loss of J.C. Penney’s core of middle-aged female customers who didn’t like the changes.

Add in the disruptions from the construction needed to remodel several parts of the store, and sales collapsed 25 percent last year, leading to a $985 million net loss.

(Source: Bloomberg)