New York, NY (AP & Wire Sources via USA Today) -- J.C. Penney says it is laying off 350 more workers at its headquarters in Plano, Tex., as the department store struggles to transform its business under Ron Johnson, a new CEO and former Apple executive.
Penney shares soared last winter after Johnson laid out a new pricing strategy; they hit a peak of $43.13 on Feb. 9, but have since lost half their value.
The company's shares were down another 5% on Tuesday, as investors worry that a sales slump is deepening amid continued customer confusion over its new pricing plan that eliminates hundreds of sales events in favor of everyday prices. A deteriorating economic environment is also adding to the woes of the chain.
The cuts, announced Tuesday, follow Penney's move in April to eliminate 600 workers at its headquarters.
"A combination of poor messaging, tampering with the merchandise flow and a slowing of the overall economic environment seem to have contributed to the current state of business," wrote Credit Suisse retail analyst Michael Exstein in a report published Tuesday.
Penney is cutting costs amid the difficult task of turning around its business. It is overhauling every aspect of its operations, from a new pricing plan, implemented Feb. 1, to new brands. The new pricing plan, which cuts hundreds of sales events, has turned off shoppers. The company reported a bigger-than-expected loss and a 20% drop in revenue in the first quarter.
Then last month, Michael Francis, a former top Target executive who was hired last October to head up the marketing of the overhaul plan, abruptly left.
Penney now has 3,100 workers at its headquarters, a 29% reduction from the 4,400 employees it had before the layoffs this spring. The company has 159,000 workers total.
Exstein noted that to put Penney's situation in perspective, during the 2008 to 2011 period, the company lost $2.6 billion or 13% of sales. By contrast, in the first half of 2012, the chain is on track to give up $1.6 billion in sales or 9% of its 2011 base, he says.
"This sales erosion makes a turnaround even more daunting as the second half approaches," Exstein wrote.
In response, Penney has either slowed or canceled whatever orders it has been able to, he said. That could impede the company's strategy to lure in new brands. The company has already announced a slew of new names including Betsey Johnson and Vivienne Tam, who are coming out with exclusive affordable versions for Penney for the fall.
During an address with investors last month, CEO Johnson, who is trying to spearhead a major transformation of the company, continued to back his pricing plan. He said that the problem was that the chain improperly communicated the pricing strategy to shoppers. It's now clarifying the savings for shoppers under the three-tier plan, which calls for reducing prices by 40% from a year ago; offering deeper month-long discounts and clearance events.
But the company has been doing plenty of backpedaling and is now is adding clearance events to the calendar in addition to the first and third Fridays of the month. Starting last week, it is now using the word "best clearance" instead of "best prices." But Exstein said more needs to be done to create a sense of urgency for the shopper.
Exstein now believes Penney will post a 50-cent loss per share for the second quarter, worse than the 31 cent loss he previously predicted. The estimate includes charges related to markdowns taken to reduce its inventory to align with the new pricing strategy. Excluding those charges, he expects a loss of 38 cents per share, instead of his original estimate for a 19 cent loss.
On average, analysts are expecting a 15 cent loss for the quarter, according to FactSet, with estimates ranging from a loss of 47 cents per share to a profit of 9 cents per share.
Penney is slated to report second-quarter earnings results next month.
For the full fiscal year, Exstein expects the company to now earn 13 cents per share, down from 22 cents per share. Excluding the charges, he forecasts full-year earnings to be $1.07, instead of $1.16 per share.
Analysts on average expect $1.37 per share, with estimates ranging from $1 to $2.16.