Marvin Ellison

PLANO, Tex. — Given J.C. Penney’s poor performance in the first quarter and the stock’s plunge to historic lows, chairman and chief executive officer Marvin Ellison emphasized Friday that the company is working to slash debt and boost revenues.

“When investors look at the retail sector, companies with the highest debt tend to have the least confidence,” Ellison noted at the retailer’s annual general meeting. “As we continue to pay down debt we continue to put ourselves in a better position, and that’s why we’re so focused on debt reduction.”

Most of the proceeds from last year’s sale of the retailer’s headquarters campus for $350 million will be used to pay down debt in 2017, he said.

The firm also sold a distribution center in Buena Park, Calif., in March for more than $100 million. Last year, the company retired $675 million in debt, he said.

J.C. Penney stock sank to $4.55 last week when first-quarter net losses widened to $180 million, or 58 cents a share, from $68 million, or 22 cents, the prior year. Sales slipped 3.7 percent to $2.7 billion from $2.8 billion, with comparable-store sales sagging 3.5 percent.

Shares traded as low as $4.22 on Monday, but the price was up slightly to $4.54 on Friday.

The apparel business has been especially tough, but Ellison sees opportunity in large sizes and activewear.

Citing last year’s launch of the chain’s first plus-size brand, Boutique+, Ellison affirmed, “This is a very underserved customer that’s loyal to us, and…we can be number one in market share over the next couple of years.”

Activewear, which he admitted the company was slow to pick up on, is now the best-performing category in apparel, driven by Nike shops and an expansion of Adidas for women, he said.

Adidas is in 100 units and will be in 600 by year-end, a spokeswoman explained.

Key revenue growth engines are the roll out of major appliance showrooms and the expansion of Sephora to 675 units by year-end, he noted.

“We are rolling out 100 new appliance stores this month in time for the Memorial Day selling period, which happens to be one of the biggest appliance selling periods of the year,” he pointed out. “That will give us over 600 locations.”

The addition of turnkey installation services for plumbing, heating and air conditioning in March was another strategic move, he said.

“Over two-thirds of [American] homes are over 30 years old,” Ellison pointed out, noting that home improvement expenditures are projected to tally $300 billion this year. Three-quarters of J.C. Penney customers own their own homes, he said.

“When Sears declines, they will give up market share in some of these categories, and we want to position ourselves to take advantage of that.”

The company continues to add in-store pick up for online purchases, and 40 percent of its web sales are collected in a store.

“In most cases, the cost of fulfillment is growing at a faster rate than the revenue of many e-commerce companies,” he said. “We think over the next 18 to 24 months, it’s going to become really critical to leverage your stores as a way to have convenient pickup for customers.”

A dramatic improvement in the retailer’s mobile app will also help, he said.

“We think the new door to the store will be the mobile app where people research what they’re going to buy and then come into the store,” Ellison noted.

J.C. Penney’s added toys during the holidays, which proved to be one of the best-performing categories of the season, he said. As a result, the company will begin selling toys in all stores for back to school.

“We did survey work and asked our customers what they bought elsewhere that they would buy from us, and the top two were toys and appliances,” he said. “So we’re listening to our customer a lot better, and we’re going to give them the things they want.”

He maintained the firm’s financial guidance, which estimates that sales will rise or fall in the range of 1 percent with a 20 to 40 basis point improvement in gross margin and adjusted earnings per share in the range of 40 to 60 cents. Selling, general and administrative expenses are projected to drop 1 to 2 percent.

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