J.C. Penney Co., struggling to turn itself around, will be cutting inventory, doubling down on catering to its core middle-aged female customer, and seizing opportunities in categories new to the business, namely baby products, toys and workwear.
The chain plans to reduce inventory by at least $250 million by the end of fiscal 2019, as part of the evolving strategy for the ailing $12 billion department store.
“It is critical for us to better manage our inventory levels, and focus on providing our core customers the assortment and shopping experience she expects from J.C. Penney,” said Jeffrey Davis, Penney’s chief financial officer, who outlined the turnaround strategy just after the company posted poor results for the second quarter, which seemed all the more disappointing in light of the strong results posted this week by Walmart while Macy’s showed good bottom-line improvement.
“Now, more than ever, we must be more intently focused on executing upon fundamentals of our core business. The time for discussion has passed, and the time for action is now,” said Davis during a conference call.
On Thursday, Penney’s reported that its net loss for the second quarter widened to $101 million versus $48 million in the year-ago quarter.
The adjusted net loss was $120 million in the three months ended Aug. 4 compared to $23 million in the year-ago period.
Net sales decreased 7.5 percent to $2.76 billion compared to $2.99 billion in the year-ago quarter due to store closings. About 140 have closed over the past year. Comparable sales increased 0.3 percent with the children’s, jewelry, Sephora, women’s apparel and salon divisions performing the best.
Darkening the outlook was Penney’s lowered guidance for the year. The company is now expecting comps to be flat, and a loss of $1 to 80 cents on adjusted earnings per share.
After Penney’s issued its results, its share price by midday had tumbled 25 percent or 60 cents to $1.82.
Penney’s turnaround efforts have been hampered by the recent departure of two key executives — chief executive officer Marvin Ellison left in May to become ceo of Lowe’s, and in July, Joseph M. McFarland, executive vice president and chief customer officer, joined Ellison at Lowe’s as executive vice president of stores. The company also has over $4 billion in debt.
It’s possible Penney’s next ceo comes up with a new set of turnaround strategies and reshapes the management team.
“The board (has) met with highly qualified candidates who have expressed their strong interest to become the next leader of J.C.Penney. The hiring of a new ceo is a top priority of the board of directors,” said Davis.
It’s not all bleak. Women’s apparel, which is critical to Penney’s revival, continues to improve and “outperformed” the total company comp in the second quarter. And there’s room for growth.
In active, “We will continue our expansion…with key brands like Nike, Adidas, Champion and Puma,” Davis said. Big and tall and kids offerings are also being expanded.
“We also have very good, exciting, new brand launches planned this fall to further enhance our women’s apparel assortment and build on the momentum we are experiencing in this critical category,” said Davis. “We know that while our women’s business performs well, the balance of the assortment typically receives a lift ,” through cross-shopping.
Davis also cited substantial improvement in our sales trends across “modern” styles and swimwear, and said that plus sizes are tracking double-digit gains. Liz Claiborne, a Penney’s exclusive, is “continuing to resonate with our core customer,” the executive said.
Other steps being taken:
* Continuing to re-brand salons and “leverage winning strategies in higher-margin jewelry.”
* Launch 500 baby shops later this month.
* Deliver enhanced presentations in workwear and toys.
* Shifting from the buying philosophy from loading up to store capacity to “chasing into demonstrated sales trends.”
“Looking at where we are today, we are taking the necessary steps to mark down and clear excess inventory position across many of our categories, which encompasses more than just seasonal products or fashion misses,” he added. “Improvements to our inventory position will enable us to enhance our store environment…showcase our improved assortment and provide a better shopping experience to our customers.”
Davis suggested that Penney’s quest to expand its customer base to attract younger and trendier customers, came at the expense of its core customers — women in the 45-to-55-plus age range. “We were no longer necessarily having the broad array of merchandise silhouettes that is most important for her.
Penney’s core customer “influences across a broad array of individuals, in their direct family and extended family, across multiple age ranges,” said Davis. “So we need to make sure that we win her, that we have the merchandise that’s important to her, such that she thinks about cross-shopping, not only for herself, but for her family.”