JC Penney's 4Q results to test investor patience

NEW YORK (AP) -- J.C. Penney is expected to report dismal fourth-quarter results after the regular markets close on Wednesday, marking a full year of hefty quarterly losses and sharp revenue drops since the department store chain scaled back most sales in favor of everyday low prices early last year.

WHAT TO WATCH FOR: Investors, growing impatient with Penney's plan to turn around its business, will want to know details about the crucial holiday shopping season and whether there are any encouraging signs that the turnaround is starting to work.

Under its new CEO, former Apple Inc. retail chief Ron Johnson, J.C. Penney is overhauling everything from prices and its product selection to the store experience. But the pricing strategy, which eliminated hundreds of sales in favor of everyday low prices, has been the riskiest. And shoppers, accustomed to big "sale" signs, have been going elsewhere.

Starting earlier this month, Penney reintroduced some of the sales and says they will be targeted at key shopping periods like Easter and Mother's Day. Penney also added price tags or signs for more than half of its merchandise that show customers how much they're saving by shopping at Penney — a strategy used by a few other retailers. For store-branded items such as Arizona, Penney is showing comparison prices from competitors.

Investors will want to know whether those two initiatives are helping to bring back shoppers. They'll also want to know how soon Johnson expects it will reverse the sales drops.

The tactical reversal comes a year after its vow to ditch most of the sales that Americans covet but that cut into a store's profits. The idea was to offer everyday low prices that customers could count on rather than the nearly 600 fleeting discounts, coupons and sales it once offered.

The bold plan has been closely watched by others in the retail industry, which commonly offers deep discounts to draw shoppers. But so far the experiment has served as a cautionary tale of how difficult it is to change shoppers' habits: Shares have been hammered, trading just above $22, or about half the value they had traded a year ago. And the company's credit ratings are in junk status, boosting borrowing costs.

Johnson, who rolled out the pricing plan shortly after taking the top job in November 2011, told The Associated Press recently the latest moves are not a "deviation" from his strategy but rather an "evolution."

The pricing strategy has been a key part of Johnson's plan to reinvent Penney, which had failed to change with the times as its competitors updated their stores to make them more attractive places to shop. The plan includes adding hip brands such as Joe Fresh and replacing racks of clothing with small shops-within-stores by 2015.

Johnson has been making many different tweaks to the pricing strategy over the past year, hoping to find the right balance. But investors worry that Penney won't be able to stem the sales bleeding fast enough to finance the transformation of the stores.

The retailer has seen declines deepen in revenue at stores open at least a year — a key measure of a retailer's health— in every quarter since the pricing plan was launched. The company is expected to report a steep drop of 26.1 percent in the metric for the crucial holiday quarter. That would match its third-quarter decline.

Kimberly C. Greenberger, a Morgan Stanley retail analyst, wrote in a recent report that she doesn't expect J.C. Penney to return to profitability until 2016, because the return to sales events requires more marketing dollars that will boost expenses.

WHY IT MATTERS: Penney is a major department store chain and sells a variety of discretionary items at moderate prices. That makes it a barometer of middle-income shoppers' willingness to spend.

WHAT'S EXPECTED: Analysts expect a loss of 22 cents on revenue of $4.14 billion.

LAST YEAR'S QUARTER: The company reported a profit of 59 cents per share on revenue of $5.42 billion.