Is This the Beginning of the End for J.C. Penney Company, Inc. (JCP)? – Sears Holdings Corporation (SHLD), Best Buy Co., Inc.(BBY)

J.C. Penney Company, Inc. (NYSE:JCP)‘s recent quarter may have been one for the record books, and not in a good way. In the quarter that usually means a windfall for retailers, the troubled department-store chain posted an adjusted loss of $427 million, or $1.95 per share. Without adjustments, that number jumps to $552 million, or $2.51 per share. By comparison, in the fourth quarter last year, the company lost $0.38 per share.

Same-store sales were similarly terrible, falling 31.7%, and overall sales fell 28.4% to $3.9 billion. Gross margin dropped 640 basis points to 23.8%, and Internet sales fell 34.4% to $315 million.

CEO Ron Johnson essentially ignored the numbers on the earnings call, choosing instead to highlight steps the company’s taken to revamp the brand, including rolling out its shops strategy, renovating its homes department, and using mobile devices to ring up customers and track sales and inventory.

Apple Inc. (NASDAQ:AAPL)s and oranges
Johnson rose to fame, in part, for his success in implementing Apple‘s retail strategy, but the two companies couldn’t be any different. Apple caters to a young, hip, tech-savvy crowd. Its stores occupy the most expensive real estate in the toniest neighborhoods across the country. J.C. Penney Company, Inc. (NYSE:JCP), on the other hand, is a 100-year-old brand in decline. It targets families and an older market, and its department stores are often found in languishing malls in forgotten corners of suburbs and rural areas.

Johnson conceded that his company had learned a few things over the past year, such as that his customers like sales and discounts, which he had tried to remove in an attempt to make it a more upscale brand. The key problem here seems to be that Johnson has alienated his core customer in order to save the company, but it’s difficult to see where he’s going to replace the third of sales that the company’s lost. Comps would have to grow 50% to get back to 2011 levels.

Cash rules everything
J.C. Penney’s free cash flow for the quarter looks decent at $415 million, but $1.02 billion of that comes from reduction in inventory as retailers often stockpile product ahead of the holiday quarter. For the year, free cash flow was negative-$820 million, and total cash on the balance sheet dropped from $1.5 billion to $930 million. Its debt burden remains high at nearly $3 billion, further straining finances as interest expense cost $226 million in 2012. The company recently extended a credit facility, indicating that more borrowing may be on the way, probably at a higher interest rate, and could even lead to shareholder dilution.