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J.C. Penney Co.'s JCP -4.84% sales last quarter went from bad to worse.
The department-store chain, in the middle of a long and painful turnaround under former AppleInc. AAPL +1.73% retail executive Ron Johnson, said its sales fell 27% in the three months ended Oct. 27, a sign the company continues to stumble as the key holiday-selling season approaches.
The drop was worse than Wall Street analysts had feared, and shares in the Plano, Texas-based company fell as much as 10% on Friday before rebounding to finish down nearly 5% at $20.62 on the day.
Corporate Intelligence: J.C. Penney Needs To Boom, Just To Get Back To Square One
Penney's sales over the first nine months of its fiscal year have fallen by $2.7 billion, nearly equivalent to the annual revenue of store chainSaks Inc. SKS +0.50%
Penney reported a third-quarter loss of $123 million, or 56 cents a share—narrower than the $143 million a year earlier as the company cut costs and spent less on restructuring.
Mr. Johnson, who joined Penney as CEO a year ago from Apple's vaunted retail operations, said the company wouldn't diverge from the strategy he laid out last January of sharply limiting discounts in favor of broadly lower everyday prices.
But the strategy has hurt customer visits and sales, while new products and in-store boutiques have failed to draw enough shoppers to offset the decline. Same-store sales slid 26% in the quarter, while Internet sales fell 37% to $214 million.
Some of the company's tweaks to that strategy have hurt as well. In August, Mr. Johnson eliminated discounts that Penney had called "monthlong values," or long-running sales on popular seasonal items. It turns out the promotions were popular with Penney's customers, who spent more than $1 billion on such items during the first half of the year. Eliminating monthlong values cost Penney $20 million a week in the third quarter, Chief Financial Officer Ken Hannah said.
Analysts at Deutsche Bank DBK.XE -2.32% recently called Penney's no-promotion pricing strategy confusing to customers, noting that the company advertised 30% off clearance items in an email last month. Deutsche Bank also pointed to a recent in-store $10 coupon, free haircuts for kids and an offer for free family photos this month, saying Penney is "backtracking on its no promotion strategy, confusing customers, and we, therefore, remain skeptical of near-term improvement in business trends."