Reversal of Fortune

J.C. Penney Co. Inc. (Plano, Texas) reported a narrower quarterly loss yesterday, as a rebound in department store sales helped offset disappointing results at its Eckerd drugstore chain.

Total sales in the second quarter increased 1.6 percent and the retailer posted a loss of less than $1 million, with a loss of $6 million at this time last year. Same-store department store sales increased 2.1 percent at department stores, but dipped 0.8 percent at previously reliable Eckerd.

Penney's, in the middle of a five-year turnaround plan under the stewardship of chairman and ceo Allen Questrom, said weakness at Eckerd is likely to continue. The drug store chain, which makes up about 45 percent of J. C. Penney's business, has been stymied by stepped-up expansion of CVS and Walgreen, competition from supermarket-based pharmacies and the effects of its own overhaul.

Eckerd ceo J. Wayne Harris said the unit's main problems have been pricing, failure to keep merchandise in stock, inconvenient locations and shoppers' confusion resulting from changes to stores.

The company outlined plans to resuscitate Eckerd, which has 2710 stores but hasn't kept up with competitors' growth and is losing market share in key regions including Texas and Florida. Operating income declined 26 percent.

Questrom admitted the company “screwed it up” and said the problems should not have happened. Executives vowed to stock more of what the customer wants and to lower prices to better compete with other chains.

“Pricing issues have been called to our attention by several analysts in the past, and my first reaction is a belated thank you,” Harris said. “And my second reaction is simply a 'Shame on me and shame on us for not catching these issues ourselves.' ”

The company said it expected further improvement in sales at its 1040 department stores, helped by federal tax cuts and strength in private label merchandise. It said 250 new or relocated stores will open this year, but that it had cut back on its remodeling plans from 550 stores to 300.