Penney’s earnings dismal

NEW YORK — J.C. Penney Co. CEO Ron Johnson hasn’t run out of magic yet, as far as Wall Street is concerned.

The former Apple executive’s soothing words drove the retailer’s stock higher even after the company offered up grisly details Friday of a terrible second quarter.

The midpriced department store chain reported a bigger-than-expected loss and plummeting sales. Shoppers are still not buying into a bold new pricing strategy. Penney even withdrew its full-year profit guidance.

After the report, Moody’s Investors Services downgraded Penney’s rating deeper into junk-bond terrain.

The company lost $147 million, or 67 cents per share, in the quarter ended July 28.

That compares with net income of $14 million, or 7 cents per share, a year ago. Revenue tumbled almost 23 percent to $3.02 billion. Excluding one-time items, Penney’s loss was 37 cents per share.

Analysts had expected a 26-cent loss on revenue of $3.2 billion.

Yet, after appearing queasy in premarket trading, investors pushed up Penney’s stock price.

The shares ended up 6 percent, or $1.30, at $23.40 on Friday.

The gains show Wall Street still wants to believe the mastermind behind the success of Apple’s retail stores and Target’s cheap-chic strategy has the magic to deliver.

“The more he sells the hope, the more investors are buying into it,” Brian Sozzi, chief equities analyst for research firm NBG Productions, who is still staying on the sidelines as far as Penney’s stock is concerned.

Under Johnson’s stewardship, Penney is changing everything from the items it stocks to store design.

Penney on Feb. 1 began using a three-tier pricing with consistently lower daily prices that were 40 percent below last year, deeper monthlong sales on specific items and periodic discounts that are even more generous throughout the year.

But on Aug. 1, Penney eliminated the monthly sales events and increased the frequency of the periodic sales to every Friday. These had been called “Best Price” sales but are now being called “clearance.”

Penney is tweaking its advertising to better explain the change. TV ads tout free children’s haircuts at stores to draw shoppers.

But Penney is sticking to its “Every Day” low price guns. Items sold under that pricing represent 70 percent of sales since the company began the new strategy.

Investors also seemed to embrace Johnson’s more detailed vision laid out Friday for rejuvenating the Penney store experience.

Johnson told analysts he’s creating a new kind of store — the specialty department store, which will be carved up with different branded shops to replace the typical sea of clothing racks.

It will also have an area in the middle of the store that will be meeting places for shoppers. At these so-called “Town Squares,” which will offer different attractions every two months, shoppers would be able to create greeting cards or take yoga or Pilates classes. Johnson wants to transform the aisles into lively paths leading to the shops. They will feature lots of mannequins, comfortable seating, coffee and juice bars as well as tables built with iPads.

The changes extend to the merchandise, which has been seen as tired and lackluster. Starting this fall, almost half the merchandise will change, with brands either new or redesigned. This fall, shoppers will see such names as Betsey Johnson and Vivienne Tam, who are creating affordable versions for the store.

Penney just launched shops for Levi’s and its own jeans brand, Arizona. Johnson said the Levi’s shop, which has a denim bar, has seen a 25 percent increase in revenue compared with last year. It plans 100 such shops within each of its stores by 2015 that will either focus on one brand or a variety of labels.