PLANO -- J.C. Penney's major transition to a new pricing and merchandising strategy, although tougher than the company expected in its first several weeks, was necessary, Ron Johnson, the company's CEO, told shareholders at the annual meeting Friday.
The retail industry's aggressively promotional era was "not a great era for our company," said Johnson, who was named CEO last year. "We had massive losses in market share."
"We are in the middle of a very important and a very challenging era in American retailing," Johnson said. "You've got to have the courage to move forward and sometimes leave the business models you've honored for a long time."
This week, Penney said it lost $163 million in the first quarter, which ended April 28, compared with a $64 million net profit the prior year. Sales in comparable stores, those open at least a year, tumbled 18.9 percent.
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The quarter took in the first 13 weeks of Penney's new strategy, which Johnson announced in January. It includes a three-tiered "Fair and Square" pricing strategy aimed at moving Penney from margin-eroding coupons. Most goods carry everyday "regular prices." Some seasonal goods carry pricing called "Month-Long Values." And goods that Penney is moving out carry the "Best Prices" moniker.
The pricing, which Penney put into place Feb. 1, is indicated by red, white, and blue squares on the racks and tables in the stores.
Beginning in August, Penney plans to revamp all its stores to include 80 to 100 branded shops, such as Martha Stewart. The remodeling will be done by 2015, Penney has said.
J.C. Penney also changed its logo and brought Ellen DeGeneres, once a Penney store employee, on as spokeswoman.
In announcing the company's earnings results, Johnson said that the first 13 weeks was softer than expected and that the company has work to do in educating consumers on the new pricing system.
A year from now, he told shareholders Friday, the company won't be up against comparisons that include aggressive coupon discounts.
"I think we're going to look back on this year of transition as one of the most difficult, but one of the best years we've ever had," he said.
Wall Street, which sent Penney shares soaring after Johnson's hiring, pounded the stock this week for the early results. Bill Ackman of Pershing Square, which owns 18 percent of Penney, defended Johnson during a speech this week at an investment conference, according to an account by Forbes magazine.
The shop-within-the-store strategy, for one, gives a brand such as Nike an inexpensive opportunity to sell its goods inside Penney stores, compared with what they'd have to pay to open their own stores in malls, he said.
Scott Nishimura, 817-390-7808