The company’s stock fell nearly 11 percent on Monday — the biggest percentage decline among big companies in the S&P 500 for the day. The stock is trading at about $18.41, its lowest price since the middle of the recession in March 2009.
The drop follows Standard & Poor’s Ratings move to lower Penney’s credit rating deeper into junk status on Friday. That came after the company reported its third consecutive quarter of big losses and sales declines since it decided earlier this year to get rid of hundreds of coupons and sales each year in favor of predictable low prices every day.
It’s the latest sign that Wall Street isn’t any happier with Penney’s pricing than Main Street is: Investors had pushed Penney stock up 24 percent to about $43 after the company announced the pricing plan in late January. But with Monday’s drop, the company’s stock has lost nearly half its value.
Penney did not immediately return calls seeking comment on Monday afternoon. But during an investor meeting on Friday, executives assured investors that the company has enough money to continue with the strategy. And CEO Ron Johnson, who took the top job a year ago, reiterated his confidence in the plan and said returning the company to growth is "Job. No. 1."
"The CEO was selling the hope, but now investors are looking at what the company will look like in the first half of the year," said Brian Sozzi, a chief equities analyst for research firm NBG Productions who follows the company. "Investors are digesting the reality."
The reality hasn’t been quite what Johnson imagined when he rolled out his plan on Feb. 1. The goal was to wean customers off of the deep discounts that they’d become addicted to, but that were eroding profits.
He got rid of the nearly 600 sales Penney offered at various times throughout the year for a three-tiered strategy that permanently lowered prices on all items in the store by 40 percent, offered monthlong deeper discounts on select merchandise and periodic clearance events throughout the year.
But as Penney’s coupons and sales disappeared, so did its customers. The company’s losses and sales declines began to pile up. Johnson made some tweaks to the pricing plan — he got rid of the monthlong sales events in August — but that didn’t help.
On Friday, the company reported its third consecutive quarterly loss that was lower than Wall Street’s expectations. Penney, based in Plano, Texas, said it lost 56 cents per share, or $123 million in the quarter ended Oct. 27. Revenue dropped 26.6 percent to $2.93 billion in the quarter. Analysts had expected a loss of 15 cents a share on revenue of $3.27 billion.
Revenue at stores open at least a year — a key measure of a retailer’s health — plummeted 26.1 percent. That’s higher than the 17.6 percent drop analysts had been expecting for the figure. Meanwhile, the number of customers coming into the store dropped 12 percent from the year-ago period.
On the news, Penney stock fell 5 percent, or $1.05, to close at $20.64 on Friday. That led Standard & Poor’s to lower its corporate credit rating on Penney’s credit, which was already in junk status, by two notches after the market closed.
S&P’s credit analyst David Kuntz said in a statement that although he believes Penney’s outlook is stable because liquidity will remain "adequate," the company’s performance may weaken further over the next 12 months.
"Credit metrics have deteriorated substantially and we believe that they could erode further over the next few quarters," said S&P’s credit analyst David Kuntz in a statement.