J.C. Penney Co. Inc. 's first-quarter sales came in worse than already-dismal assumptions and the retailer also discontinued its dividend to help fund its ongoing overhaul, sending shares down nearly 11 per cent in extended trading.
The results were a splash of reality to investors who were banking on a turnaround plan by a vaunted new chief executive officer who was credited with helping build Apple Inc. 's retail chain.
In February, Penney began a multi-year transformation that includes eliminating hundreds of sales events in favour of everyday prices on most items, a radical departure that analysts predicted would confuse or alienate its customers.
While Wall Street was braced for disappointing same-store sales, the dividend move came as a negative surprise.
The Plano, Tex.-based mall retailer said it was discontinuing its 20 cent (U.S.) per-share quarterly dividend and that it would use the resulting $175-million in savings to help fund the company's turnaround.
"What the market did not predict was the dividend cut. That is the big shock," said Brian Sozzi, chief equities analyst for NBG Productions.
"The dividend cut makes you lose shareholder support. And it also makes you wonder, do they have the balance sheet to fund this massive transformation of the business over the next two to three years?" Mr. Sozzi said.
CEO Ron Johnson said in a statement on Tuesday that "sales and profitability have been tougher" than expected.
Same-store sales, considered a gauge of retail health, dropped 18.9 per cent in the first quarter, more than the 12.2 per cent decline expected by analysts, according to Thomson Reuters I/B/E/S.
Total sales slumped 20.1 per cent to $3.15-billion, below the $3.41-billion Wall Street was expecting, according to Thomson Reuters I/B/E/S.
Penney reported a net loss of $163-million, or 75 cents per share, for the quarter ended April 28, compared with a profit of $64-million, or 28 cents per share, a year ago.
Penney shares fell 10.7 per cent to $29.74 in after-hours trading after closing at $33.32 on the New York Stock Exchange.