“J.C. Penney on Tuesday reported a larger-than-expected loss in the first quarter largely because customers were turned off by the retailer’s new plan to get rid of heavy discounting periodically throughout the year in favor of everyday low pricing,” Anne d’Innocenzio reports for The Associated Press. “The idea of the strategy, which was rolled out on Feb. 1, is to discourage shoppers from waiting for the nearly 600 sales Penney used to offer each year. But the move has backfired: It seems many faithful Penny customers have stopped shopping altogether.”

“The company, which is based in Plano, Texas, lost $163 million, or 75 cents a share, in the three months ended April 28. That’s down from a profit of $64 million, or 28 cents a share, in the year-ago period,” d’Innocenzio reports. “Revenue dropped 20 percent to $3.15 billion, below the penny loss on revenue of $3.45 billion Wall Street had expected. Revenue at stores opened at least a year — a figure the retail industry uses to measure a company’s health — fell 18.9 percent. That’s much steeper drop than the 11.4 percent drop analysts polled by FactSet had been forecasting.”

“Penney’s disappointing results are the first glimpse into how the bold pricing strategy is playing out with customers. They underscore how difficult it is for a company to fundamentally change the way customers behave. Industry watchers Penney’s has an uphill battle in attempting to shift the mindset of U.S. shoppers, who increasingly have become accustomed to and spoiled by fat discounts during the economic downturn,” d’Innocenzio reports. “The pricing plan is the riskiest move yet by new CEO Ron Johnson — a former Apple Inc. executive who started in November — to transform every aspect of the department-store chain from the brands it carries to the way it positions them in stores. Penney has said for months that it will take time for the pricing plan to work, but the poor results put more pressure on Johnson to convince investors that he’s on the right path.”

d’Innocenzio reports, “Investors had put a lot of faith in Johnson, who was the mastermind behind Apple’s successful retail stores and who also spearheaded the cheap chic strategy at Target in the 1990s. But they’ve soured on the plan recently. Penney shares soared 24 percent to about $43 after Johnson laid out his pricing strategy in late January. But since the middle of February — after the plan was rolled out in stores— investors have become increasingly nervous, sending shares back down to trade around $34. After the company reported its disappointing first-quarter results after the markets closed, Penney’s shares fell 12 percent to $29.30 in after-hours trading.”

Read more in the full article here.

MacDailyNews Take: We wouldn’t sell Ron Johnson short.

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