August 14, 2015 / 7:18 PM / 2 years ago

J.C. Penney loss narrows as Sephora stores help attract shoppers

Customers ride the escalator at a J.C. Penney store in New York August 14, 2013.Brendan McDermid

(Reuters) - J.C. Penney Co Inc (JCP.N) reported a smaller-than-expected quarterly loss, helped by demand for home goods and high-end Sephora beauty products, indicating that the department store operator's turnaround efforts were starting to pay off.

Shares of the company, which also said the current quarter was off to a strong start, rose as much as 9 percent in early trading on Friday.

J.C. Penney has been increasing the number of stores run by popular beauty brand Sephora — owned by luxury giant LVMH (LVMH.PA) — within its stores to attract shoppers.

"Having Sephora in stores helps J.C. Penney drive sales, but it also encourages shoppers to visit, so it helps to drive customer traffic," Neil Saunders, chief executive of research firm Conlumino, said.

"Those people may then go on to buy other things."

J.C. Penney set up more Sephora outlets within its stores following pressure from activist investor Bill Ackman during an ill-fated attempt to go upmarket.

Sephora outlets accounted for 12 percent of the company's sales last year, along with women's accessories. J.C. Penney had 515 Sephora stores as of Aug. 1.

Home products at J. C. Penney are selling well because it has relatively less competition than fashion, Saunders said.

J.C. Penney's net loss narrowed to $138 million, or 45 cents per share, in the second quarter ended Aug. 1, from $172 million, or 56 cents per share, a year earlier.

Excluding items, the company reported a loss of 41 cents per share.

Revenue rose 2.7 percent to $2.88 billion.

Analysts on average had expected a loss of 48 cents per share and revenue of $2.86 billion, according to Thomson Reuters I/B/E/S.

Saunders said it will take 18 months for J.C. Penney to move into sustained profitability.

J.C. Penney's results contrast those from higher-end department store operators Macy's Inc (M.N) and Kohl's Corp (KSS.N). Both companies reported sales and profit below analysts' estimates this week.

Sales at J.C. Penney stores open more than a year rose 4.1 percent, above the 3.9 percent expected by analysts polled by research firm Consensus Metrix.

J.C. Penney's sales have been improving since the company abandoned its attempt to move upmarket in 2013, reintroducing traditional discounts and focusing on a narrower set of products.

The company's shares were up 5.5 percent at $8.51 in afternoon trading on the New York Stock Exchange. Up to Thursday's close, the stock had gained about 25 percent this year. Graphic on department store earnings: (reut.rs/1UIbCmK)

Additional reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Maju Samuel and Sriraj Kalluvila

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