Mixed Retail Results in 2nd Quarter Don’t Dampen Hope for Fall

While bad weather and markdown pressures hurt retailers’ second-quarter profits, initial earnings results indicated things could have been worse.

Investors traded down the firm’s shares 31 cents, or 1.7 percent, to land at $17.76 in trading on the New York Stock Exchange Tuesday.

Penney’s management was happy with the department store and catalog’s second-quarter results and said an improving retail environment, tax rebates and its “fashionable, trend-right products for moderate customers” formula bodes well for b-t-s, fall, and the third quarter in general.

“We are off to a good start in August,” said Vanessa Castagna, chief executive officer of Penney’s stores, catalog and internet on a conference call. “We believe our customers benefit from the tax program. The checks that are being mailed now are well-timed for back-to-school purchases, as our target customer tends to spend this cash on their kids and families.”

Allen Questrom, chief executive of J.C. Penney Co., added that Penney’s moderate customer “is about spending what she gets, and when she has it, she’s going to spend it on her family.”

To insure those customers spend those checks in Penney’s stores, Castagna said the company needs to continue to strike a balance between basics and more fashionable trend-right products for moderate customers, with national, private and exclusive brands being the key. Penney’s sold about $1 billion in private label apparel during the quarter, she said.

“Private and exclusive brands represent 40 percent of our sales. Clearly the customer is looking for exclusive brands,” Castagna said. “We believe we’ve made progress with our assortment and we are focusing on brands that are important to the moderate customer.”

Castagna cited Bisou Bisou, Mixit and its exclusive deal with BCBG Max Azria’s Parallel line as examples.

Fleshing out the strategy, Questrom said: “The middle of America is basically J.C. Penney’s home, and so we are never going to be the most fashionable store in America and that’s not our intention. But we do believe that on the coasts and in certain markets we need more fashion to give the store a more updated feel.”

As for Eckerd, Questrom and division ceo Wayne Harris were frank about the drugstores’ lackluster results, citing uncompetitive pricing and other merchandising and marketing problems.
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