|JCPENNEY REPORTS FIRST QUARTER 2018 FINANCIAL RESULTS|
Delivered Positive Sales Comp and Operating Income
Retired $190 Million of Long-Term Debt at Maturity
PLANO, Texas - (May 17, 2018) - J. C. Penney Company, Inc. (NYSE: JCP) today announced financial results for its fiscal first quarter ended May 5, 2018.
Marvin R. Ellison, chairman and chief executive officer said, "During the first quarter, we achieved a positive sales comp of 0.2 %, which was impacted in large part by a very late start to Spring where we experienced cooler than normal temperatures in April. Although our overall top line sales results came in below our expectations for the quarter, we were encouraged by the strong positive comp performance throughout February and March, as well as the last two weeks of April, when temperatures began to normalize."
Ellison continued, "Overall, we believe that our strategies are beginning to take hold, as we are seeing improvement in a number of areas. Apparel categories performed well during seasonable weather periods, and our beauty and home refresh initiatives performed well above our total comp sales performance for the quarter. The strength in sales performance early in the quarter, our investments in enhancing our apparel categories, continued strength in our beauty and home refresh initiatives and a focus on taking market share from ailing retailers all give us confidence in our annual comp sales guidance of flat to up 2%. Our teams remain committed to improving our core apparel business and executing on our strategic growth initiatives. I would like to thank our nearly 100,000 associates around our company for their hard work and commitment to JCPenney."
Starting in the first quarter of fiscal 2018, the Company adopted new accounting standards which relate to revenue recognition and pension accounting. Accordingly, the Company has changed the current year and prior year presentation in its financial statements to reflect the requirements of the new standards.
For the first quarter ended May 5, 2018, total net sales decreased 4.3 % to $2.58 billion compared to $2.70 billion for the first quarter ended Apr. 29, 2017. The decline in total net sales was primarily the result of the 141 stores that closed in the second and third quarters of fiscal 2017. Comparable sales increased 0.2 % for the first quarter. Credit income, which was previously reflected as a reduction to SG&A, was $87 million for the first quarter this year compared to $83 million in the first quarter last year.
Jewelry, Sephora, Men's and Salon were the Company's top performing divisions and categories during the quarter. Geographically, the Gulf Coast and Southeast were the best performing regions of the country.
Cost of goods sold, which excludes depreciation and amortization, was $1.71 billion, or 66.3 % of sales, compared to $1.73 billion, or 63.9 % of sales in the same period last year. The increase as a rate of sales was primarily driven by increased online clearance selling and continued growth in the mix of the Company's online business, markdown and pricing actions taken in the quarter to clear slow-moving seasonal inventory and ongoing growth in major appliances.
SG&A expenses for the first quarter were $826 million, or 32.0 % of sales compared to $938 million, or 34.7 % of sales in the first quarter last year. The improvement to last year was primarily driven by lower controllable costs and marketing spend and a reduction in lease expense associated with the remaining amortization of a gain on the sale of a leasehold interest last year.
For the first quarter, the Company's net loss was $78 million, or ($0.25) per share, compared to a net loss of $187 million, or ($0.60) per share in the same period last year.
Adjusted net loss was $69 million, or ($0.22) per share, for the first quarter this year compared to adjusted net income of $2 million, or $0.01 per share, for the first quarter last year. Adjusted net loss/income for the first quarter of 2018 and 2017 included the sale of operating assets, which totaled $17 million, or $0.05 per share, and $117 million, or $0.38 per share, respectively. In addition, adjusted net loss/income for 2018 and 2017 included the following items:
A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
Inventory at the end of the first quarter was $2.95 billion, a decrease of 1.4 % compared to the end of the first quarter last year, and up 2.6 % on a comp store basis. Capital expenditures for the first quarter, net of landlord allowances, were $103 million.
Cash and cash equivalents at the end of the first quarter were $181 million. During the quarter, the Company utilized available cash on hand to retire $190 million principal amount of outstanding secured notes that matured in February. The Company also issued $400 million in senior secured second priority notes due 2025, utilizing the net proceeds of the offering to successfully complete its tender offer for $375 million aggregate principal amount of its outstanding 2019 and 2020 bonds. The Company ended the quarter with liquidity of approximately $2 billion.
The Company has revised its 2018 full year guidance, which reflects only the impact of the adoption of new revenue recognition and pension accounting standards, as follows:
 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 at this time.
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 9768329 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:
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.
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, the proportional share of net income from our joint venture formed to develop the excess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture) 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, the proportional share of net income from the Home Office Land Joint Venture 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. Further, 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, the proportional share of net income from the Home Office Land Joint Venture 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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