By ANNE D'INNOCENZIO
AP Retail Writer
NEW YORK (AP) - 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 bleak performance marked the second-straight quarter of severe sales declines since Penney got rid of most steep, temporary discounts in favor of everyday lower prices. The report confirmed it's going to be a hard sell to shoppers who are used to big sale signs and coupons.
Yet, after appearing queasy in premarket trading, investors pushed up Penney's stock price by as much as 9 percent following some reassuring words from Johnson during a 90-minute conference call.
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.
Johnson, dressed in a navy blue blazer, white shirt and blue jeans, remained confident and calm as he vowed he was sticking to the plan. He shared more details of his vision for creating a new breed of specialty department stores and said that the latest fixes to simplify the pricing plan are resonating with customers. He and CFO Ken Hannah also allayed concerns about how much cash the company has.
While admitting to mistakes in pricing and marketing, Johnson told investors, "I am completely convinced that our transformation is on track."
Under Johnson's stewardship, Penney is changing everything from the items it stocks to store design. But the riskiest move has been its pricing. The goal is to offer consumers more predictability so they will visit more often. That will help break the vicious cycle of discounting that has soiled the brand, a laggard behind Macy's Inc. and other competitors.
Penney's stock is beaten up _ still down by nearly half since their peak above $42 in the afterglow of Johnson's hiring. And business can't get any worse, said Ron Friedman, head of the retail and consumer products group at accounting firm Marcum LLP.
"People are optimistic. They really believe in him," Friedman said. That goodwill means Johnson has at least another year to deliver, he said.
Johnson has said he's used to naysayers. Back in January, Johnson told investors how he faced lots of critics on Wall Street in 2001 when he launched the first Apple store. "There wasn't one positive believer that thought an Apple retail store would work." Of course, they were wrong.
Johnson's task at Penney is more challenging.
In May, Penney's stock plunged 20 percent, its biggest one-day decline in four decades, after the retailer posted a larger-than expected first-quarter loss and a 20.1 percent drop in revenue because of the poor reception from shoppers. Customer traffic was down 10 percent.
Things got even worse in the second quarter as Penney backpedaled a bit on discounts, withdrew TV advertising and canceled some print ad campaigns in mid-June as it figured out its new game plan.
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. Revenue at stores open at least a year fell 21.7 percent, worse than the 18.9 percent drop the quarter before. Customer counts fell 12 percent.
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.
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."
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