J.C. Penney Co., after a standout holiday season surpassing its rivals, is moving into 2016 with clean inventories, a host of emerging strategies and formats, and confidence that it’s on the mend.
In addition, much of the game plan plays on proven strengths. Penney’s is accelerating the rollout of Sephora, furthering private brand offerings, and aggressively marketing to reinforce its value message.
Sunday marked the launch of a “Get Your Penney’s Worth” campaign that initially offers an Arizona private brand item for a penny, provided shoppers buy one at regular price. Upcoming “Penney Days” will offer certain items for one cent with no additional purchase required “while supplies last.”
On Friday in a conference call, chief executive officer Marvin Ellison portrayed the recovering middle market chain as advancing new concepts but stressed piloting projects before fully implementing them. A lack of testing proved near fatal to Penney’s during the regime of Ron Johnson from November 2011 to April 2013, who unsuccessfully tried to reinvent the business.
Among the pilots and projects in the works:
* Buy online and same-day pick up in store, currently in 10 percent of Penney’s locations.
* Testing large appliances in space carved out of low productivity spots in some home departments.
* Localization, to tailor assortments based on ethnicity, size demands and climate.
* Asset sales to monetize assets and cut debt, including a sale leaseback of the home office in Plano, Texas that could be announced early fall, and other sales.
Penney’s expects to lower costs and improve margins by “leveraging” its private brand infrastructure through enhanced data analytics and with newly implemented systems for purchase ordering, assortment and item planning, pricing and other areas. Penney’s sees reducing labor costs through technology. “We’re improving on the science of retailing,” Ellison said.
Penney’s results for the fourth quarter — highlighted by adjusted earnings before interest, taxes and depreciation up 40 percent to $381 million — were the best sign yet that the company is winning back market share from such competitors as Macy’s and Kohl’s, which both reported disappointing fourth quarters. “We cannot speculate on any one retailer in particular, as we’re taking market share from a mix of retailers,” a spokesman told WWD. There is still plenty of ground to be gained considering that six years ago, Penney’s generated $18 billion in annual revenues, compared to last year’s $12.6 billion.
Adjusted earnings per share in the quarter ended Jan. 30 were 39 cents, after excluding charges associated with primary pension plan expense, restructuring costs and the loss on extinguishment of debt. Adjusted net income was $121 million, an improvement of $108 million, or 831 percent.
However, when factoring in restructuring, debt retiring and other costs, the net for the quarter showed a loss of $131 million versus a $35 million loss a year ago. This includes $211 million associated with the noncash pension settlement charge, as well as charges related to restructuring costs and early debt retirement. For the year, the net loss narrowed to $513 million versus $717 million a year ago.
While most chains showed poor sales for the weather-impacted holiday season, Penney’s said comparable-store sales grew 4.1 percent last quarter, and 4.5 percent for the year. For 2016, Penney’s is projecting a 3 to 4 percent comparable sales growth and $1 billion in EBITDA.
Ellison took over from Myron “Mike” Ullman as ceo 15 months ago, who stabilized the business, and has carried the ball forward while instituting some strategies of his own. These include re-engineering labor to be more customer-facing and less task-oriented, modernizing the marketing with greater social media and digital advertising and introducing new private label products.
“Our focus on private brands, omnichannel and revenue per customer is clearly resonating as we continue to win market share in a competitive environment,” said Ellison. “We are also pleased that we delivered strong fourth-quarter results while effectively managing our inventory, which finished the year up 2.6 percent.
“With very challenging weather conditions in the quarter, all three apparel divisions [men’s, women’s and kids] had positive comps,” Ellison said. However, the top performers last quarter were Sephora, footwear, handbags and home, in particular boots, small electronics, fine jewelry, luggage and athleticwear.
As far as Penney’s target customer, who has average household income of $60,000 a year, “Our data shows this midtier consumer has continued growth possibilities. Revenue per customer increased by 560 basis points in 2015. It will continue to grow,” Ellison said.
Private brands, which represent about 50 percent of the business, will grow. One way is through the Michael Strahan private collection of suit separates, sport coats, dress shirts, neckwear, belts and accessories — which launched last fall and is being expanded to over 500 doors and will be introducing activewear in 500 stores prior to Father’s Day.
With the Sephora in-store shops, 20 opened in 2015, bringing the total to 518. Another 60 will open this year.
During the first half, center core areas in 350 stores will be redesigned to spur cross-shopping between fashion jewelry, footwear, handbags and accessories. Handbags will have new fixtures, graphic displays and wider selections. Fashion jewelry will be re-organized by brand, color and trend, and necklaces, bracelets, earrings and scarves will be displayed on modern white fixtures with stylized black lacquer mannequins.
“We are far from satisfied. We have a lot of work to re-emerge as a world-class retailer,” Ellison said.