J.C. Penney is progressing in its turnaround bid through improvements in women’s apparel, margins, shrinkage and store presentation, amid continuing declining sales and profits and store closings.
“In my experience there are no quick fixes when you are turning around a major retailer,” said Jill Soltau, the retailer’s chief executive officer since October 2018 and former ceo of Jo-Ann Fabrics and president of Shopko.
“We are methodically rebuilding the company’s foundation and I continue to be encouraged by the progress we are making. We are now consistently reducing inventory, improving shrink, reenvisioning our merchandise and rolling out innovations including curbside pickup,” which will be at 50 stores next week.
Soltau’s comments came Thursday during a conference call after the company reported net income for the fourth quarter dropped to $27 million, or 8 cents a share, from $75 million, or 24 cents a share, in the same period a year ago. Adjusted net income was $43 million, or 13 cents a share, compared to $57 million, or 18 cents a share, a year ago.
Sales in the fourth quarter decreased 7.7 percent to $3.38 billion compared to $3.67 billion in the year-ago period. Comparable store sales decreased 7 percent.
Adjusted comparable store sales, which exclude the impact of the company’s exit from major appliances and in-store furniture, decreased 4.7 percent.
While providing a litany of changes for the better in the business, investors were apparently spooked by the continued weak outlook and the coronavirus. The stock dropped 5 percent or 3 cents to 69 cents. Soltau addressed the risk of Penney’s stock being de-listed from the New York Stock Exchange saying, “Our 30-day average closing share price fell below $1 as of Jan. 30. We intend to increase our share price to above $1 through improvements in our operating performance as we did this past December.”
Soltau also addressed the coronavirus, indicating that it “continues to be a fluid situation that we are watching closely. As you know, we have a diversified supply chain and we have no stores in China or in other impacted countries. We do have associates in our international buying offices including in Shanghai and Hong Kong and we are in constant contact with them to ensure we are meeting their needs. For now it remains too early to quantify any financial impact of the virus.”
For now, as Soltau maintained, the company delivered on its business objectives and financial guidance. She said the fourth quarter marked Penney’s third consecutive quarter of “meaningful” gross margin improvement, up 200 basis points versus fourth quarter of last year, and that inventory was down 11 percent last year, and nearly 23 percent from 2017.
She said Penney’s was reallocating inventory to areas seeing the most growth, athletic apparel and denim among them, and that store presentations are changing to provide “an engaging and inspiring customer experience” without any extra capital required.
The changes, as disclosed to WWD by Soltau last year, center around segmenting apparel and accessories so consumers can shop by occasion, such as for work, an evening event, a casual weekend or for working out, and focusing on a target customer she characterized as the “all-in shopping enthusiast.”
Penney’s has begun merchandising large sizes side by side with regular sizes, and extending the range of sizes.
Also, the retailer is positioning and styling mannequins to highlight outfits and trends, and adding “styling rooms” for improved fitting room experiences.
“During the second half of the year, six of our eight merchandise divisions showed an improvement in comparable store sales over the first half of the year. The biggest improvements were in women’s apparel, women’s accessories, footwear and home within continuing categories. We still have work to do on our top line,” Soltau said.
Last quarter, women’s saw gains in dresses; sportswear; denim; Levi’s; the a.n.a., Liz Claiborne, and St. John’s Bay private brands. “[Additionally] all of our national brand athletic partners had strong sales results, including our newest brand Champion,” Soltau said.
Men’s big and tall was strong; kids improved and toddler’s delivered a positive comp.
This summer, Penney’s in-store Sephora shops will add the Selena Gomez beauty line called Rare Beauty.
Penney’s is playing catch up with e-commerce and recently hired Karl Walsh as chief digital officer, to advance the business and bring personalization and affinity programs to the platform so it connects “emotionally” with customers. More than 80 percent of Penney’s sales are in stores, though more than 90 percent of Penney customers start the path to purchase online.
Penney’s operates about 850 stores of which nearly three quarters are in malls. The company has closed 117 stores since the start of 2019 and will close at least six this year.
“J.C. Penney continues to stabilize its operations despite the challenges facing the department store sector,” said Moody’s lead J.C. Penney analyst Christina Boni on Thursday.
“Although comparable store sales declined 7 percent (4.7 percent when adjusted for its exit of appliances and furniture) inventory management was disciplined. Inventories decreased 11 percent which supported its 200 basis point gross margin improvement in the fourth quarter. Although significant operational improvement is still required to reduce leverage to more sustainable levels, J.C. Penney remains free cash flow positive with good liquidity with cash and revolver availability at approximately $1.8 billion.”