J.C. Penney shares fell sharply on Friday after the struggling retailer said its third-quarter loss would be far worse than analysts expected due to heavy discounting on its apparel lines.
For the quarter ending Oct. 28, Penney is now expecting a loss of between 40 cents to 45 cents a share, well below analyst expectations for a loss of $0.18 a a share and the $62 million, or 20 cents a share, that it lost in the second quarter.
The company lost $242 million in the first six months of this fiscal year after posting a slim $1 million profit last year.
“In the third quarter, we took the necessary steps to accelerate inventory liquidation primarily across all apparel divisions, which increases available funding to invest in new and trending merchandise categories,” CEO Marvin Ellison said in a news release.
The inventory liquidation “favorably impacted sales” during the months of September and October, he added, but “these actions will create a short-term negative impact to cost of goods sold and earnings.”
Penney expects third-quarter same-store sales to be up 0.6% to 0.8% and to be in the range of down 1% to flat for the full year. Cost of goods sold is projected to increase 300 to 320 basis points.
In trading Friday, Penney’s shares dropped 14.75% to $3.12, bringing the year-to-date decline to 62.4%.
As Fortune reports, Penney “has been trying to diversify away from apparel into areas like appliances and home improvement, notably to take advantage of Sears’ deepening problems. But apparel remains its largest business amid signs selling appliances is not moving the needle much quite yet.”
While the liquidation “will clean up Penney’s inventory heading into the holiday season,” Fortune said, “it is discouraging for the company that its fashion offerings are not catching on with customers, especially with a robust economy that would otherwise be lifting its sales.”
The company also cut its full-year adjusted earnings forecast to 2 cents to 8 cents per share, from 40 cents to 65 cents.