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JC Penney's Ullman: Still In Early Stages Of Turnaround

Tuesday October 8th, 2013 - 9:20AM


J.C. Penney Company, Inc. has reported that it is making solid progress in its turnaround and provided an update on the company's operating performance and key initiatives underway to return to profitable growth. However, the company noted that implementing the new home store strategy has been more challenging than planned.

"Reconnecting with our customers and getting them into our stores is a top priority. Our enhanced messaging is reminding shoppers that JCPenney's offering of trusted private brands, key national brands and unique attractions sets us apart from the competition. Over the last six months, we have made significant strides and are now seeing positive signs in many important areas of the business, in spite of what continues to be a difficult environment for consumers and retailers in general," said Mike Ullman, CEO of JCPenney.

"While pleased with the improving trends and more predictable performance, we are still in the early stages of the turnaround and will maintain a relentless focus on achieving our long-term goals for the benefit of our customers, associates and shareholders," Ullman continued.

The company reported that it saw improved sales trends in fiscal September, and expects this to continue throughout the remainder of the year. Sales for the fiscal month of September, ended October 5, were down 4% when compared to September 2012. This constitutes a 580 basis point improvement over August 2013. Sales on jcp.com continue to trend double digits ahead of last year, and are up 18.6% in the third quarter to date.

September sales on jcp.com experienced 25.3% sales growth over the same period last year, according to the retailer. Gross margins continue to be impacted by lower clearance margins due to the overhang of inventory from the first two quarters of the year, higher levels of clearance units sold during the period, as well as the company's transition back to a promotional pricing strategy during the second quarter of 2013. For the month of September, units per transaction and average transaction value are above last year, while average unit retail was below last year.    

Getting the new Home strategy up and running has been more challenging than originally planned, JC Penney reported. To date, the company has re-opened all but a handful of its 505 new Home departments. The merchandise assortment, shopping environment and price points have not resonated with customers, and sales trends remain weaker in stores. In-line with customer preferences, the company is working aggressively to create a more balanced assortment between modern and traditional home furnishings, with opening pricepoints and an easy shopping environment, which includes remerchandising the home store by classification in key areas.  

Last week, JCPenney closed a public offering of 84 million shares of common stock that generated approximately $785 million in net cash proceeds. The company's year-end liquidity is now expected to be in excess of $2 billion, taking into account the net proceeds of approximately $785 million from the offering, as well as the previously disclosed expectation of $1.3 billion of year-end liquidity including the undrawn portion of the Company's credit facility.  

According to the company, JCPenney has a highly experienced and focused leadership team. Over the last few weeks, it has filled several key positions with highly qualified executives from inside the company.  This includes the appointments of Scott Laverty to EVP, chief information officer, Jan Hodges to SVP, GMM of Home and Katheryn Burchett to SVP of Property Development.

Ullman concluded, "Although there remains significant work to be done, the experience, talent and drive of our team is allowing us to confront our challenges head on and take swift and effective actions to address them. We are all dedicated to continuing the momentum underway and restoring JCPenney to a leadership position in American retail. It will take time, but we are on the right path with a sound strategy and achievable goals."