C. Penney Co.’s second-quarter sales declined more slowly than a year earlier, appearing to show that Chief Executive Officer Mike Ullman is making progress as hedge-fund manager J. Kyle Bass bets on a revival.
Revenue in the quarter ended Aug. 3 fell 12 percent to $2.66 billion, the Plano, Texas-based department-store chain said Tuesday. That was less than the 23 percent drop in the same period last year.
Ullman may be starting to undo the disappointing results of former CEO Ron Johnson’s failed overhaul by reviving sales events and bringing back private-label merchandise that appeals to the chain’s traditional customers.
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.
“It’s not the disaster some thought it would be,” said Liz Dunn, an analyst at Macquarie Group in New York. She rates the shares neutral, the equivalent of a hold.
Revenue rose each month throughout the quarter, a trend expected to continue through the rest of the year, and was encouraging during the early part of the back-to-school season, J.C. Penney said.
Sales at stores open at least a year slid 12 percent, dragged down by a weak performance in the home department, which Johnson made more upscale.
“Our underperformance in this area has been a major obstacle in the turnaround effort,” Ullman said in an analysts’ conference call. “It was apparent quickly that the merchandise wasn’t resonating with our core customer, and performance is weaker than we hoped.”
Penney shares are down about 33 percent in 2013.
Bass, 43, founder of Hayman Capital Management LP in Dallas, is betting that J.C. Penney can stabilize sales and has enough cash and credit to carry it until the 2014 holiday season.
In the hedge-fund manager’s view, the company’s apparel business is rebounding and it is sitting on valuable real estate.
The company said it ended the quarter with about $1.54 billion in cash, more than the $1.5 billion the company said earlier this month it would have. The retailer said Tuesday it expected to end the year with more than $1.5 billion in liquidity and that the forecast doesn’t assume outside financing. The current cash holding is entirely borrowed money.
Given the company’s use of cash, “things really need to turn quickly in the third quarter,” Dunn said. “I didn’t think they had a shot to do it in this second quarter, but the third quarter is make or break.”
J.C. Penney’s 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.