PLANO, Tex. — J.C. Penney Co. is setting ambitious goals for the bottom line and expansion.
Company executives told Wall Street analysts here on Wednesday that within five years they are aiming for operating profits to increase to 9.5 percent of sales from 7.1 percent last year, and to generate a 15 percent return on equity and a 20 percent return on capital compared with 12.3 percent and 8.3 percent, respectively, in 2004.
Deflecting speculation about a hostile takeover bid for the retailer, executives said Penney’s is poised to grow with historic momentum.
Michael W. Taxter, executive vice president and director of J.C. Penney stores, said the chain will open 20 stores a year over the next five years, many of which will be off-mall locales, and that it will spend $2.4 billion in the same period to remodel stores and $270 million a year to build new stores.
“By 2009, we expect our financial profile to be in a position of leadership within the industry, similar to the position we achieved in the late-Eighties and early-Nineties,” said Robert B. Cavanaugh, executive vice president and chief financial officer.
The 1,017-unit chain has undergone a dramatic financial transformation since 2000 through its successful efforts to retire debt, improve its credit ratings and borrow money, Cavanaugh said.
Penney’s free cash flow should show a major improvement, and during the next two to three years, it will average about $300 million annually, rising from about $100 million this year to more than $400 million by 2009, he said. This should help Penney’s maintain a competitive dividend payout of 20 to 25 percent of prior-year earnings along with stock-repurchase programs.
On Wednesday, Penney’s stock closed at $44.88, down 64 cents in New York Stock Exchange trading.
Providing guidance for 2005, Cavanaugh said the $18 billion chain is planning an operating profit of about 7.6 percent; a low-single-digit gain in same-store sales; about 1 percent growth in department store square footage, and catalogue-Internet sales rising in low- to midsingle digits. Internet sales alone are expected to increase 25 percent and are pegged to hit $1 billion. Cavanaugh said that Penney’s looks for its cash balance to hit $2.5 billion this year.
John W. Irvin, executive vice president and president of catalogue and Internet, said Penney’s catalogue-Internet division offers more than 200,000 items, many of which aren’t available in stores, including electronics. In 2004, the catalogue-Internet division shipped 30 million orders.
At a news conference after the meeting, Penney’s executives were questioned by analysts about the possibility of a hostile takeover or leveraged buyout involving New York-based Cerberus Capital Management LP. Chairman and chief executive officer Myron E. Ullman 3rd used the opportunity to emphasize the company’s new five-year agenda.
Citing what he called “recent alleged LBO rumors,” Ullman responded, “We believe our plan offers dramatic growth and we’re committed to that plan.”
Ullman said Penney’s women’s business continues to be strong and is driven by lifestyle fashion trends reflected in its growing stable of proprietary labels. He said the chain is also considering reentering the beauty business, which it abandoned a few years ago to focus on rebuilding its then-limping fashion business, but that a decision wasn’t imminent.
Earlier, Penney’s executives gave analysts a tour of the Stonebriar Mall store in Frisco, Tex., a few miles from the company’s headquarters. New proprietary labels at Penney’s got plenty of play in ubiquitous displays, including nicole by Nicole Miller, W Weekend to Work and Nick (It) by Nick Graham, in addition to expanded home furnishings from Chris Madden.
“The merchandise and the store layout at Penney’s is all about fitting our customers’ lifestyles and building a strong bond with them,” said Liz Sweney, executive vice president and general merchandise manager for women’s apparel. “Our research backs up what our customers are telling us: that women want versatile lifestyle apparel that can go from dressy to career to casual.”
Penney’s claims to be the top shopping destination favored by teenage girls and to have dominant department store market share in juniors’ fashions.