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J.C. Penney: Core, Home Store and Omnichannel Will be Key to Comeback

Though things have been less than prosperous for J.C. Penney in the last 18 months, the department store has outlined positive prospects for growth in the next three years.

At its 2014 analyst meeting in New York Wednesday, the retailer presented three key initiatives to restore sustainable profitable growth between 2015 and 2017: revitalizing its center core, driving increased home store productivity and maximizing omnichannel capabilities.

Mike Ullman, Penney’s chief executive officer, who returned to lead the company 18 months ago after Ron Johnson’s notorious 17-month tenure, said the retailer is in a much stronger position today than when it began its turnaround effort in conjunction with his return.

“While we recognize that there’s more work to be done in a highly competitive retail environment, I couldn’t be more encouraged by the significant progress our teams have made in such a short amount of time,” he said. “I am confident that the initiatives we are putting in place will fuel new growth and earn greater customer loyalty as we pursue our vision to become the preferred shopping choice for Middle America.”

Ullman has been working to reinstate the frequent discounting, coupons and promotional strategies to regain its core customer, which Johnson lost as a result of his aggressive “reinvention” of the brand.

During the meeting, Penney’s executives discussed the major initiatives expected to generate “incremental sales growth” over the next few years. The store’s highest traffic area, its center core, will be revitalized as a leading destination for beauty, jewelry and fashion accessories. Home Store productivity will be improved with value-driven products and a tailored promotional strategy.

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Penney’s senior leadership attributed the company’s upbeat outlook to its renewed focus on the customer proposition, and to reestablishing the right private brands and sought-after national brands. The retailer is focused on targeting a new and younger customer, and plans to attract them with exclusive in-store attractions, like its shop-in-shop Sephora, which will be opened in additional locations through 2017. Penney’s will also open more than 100 additional Disney-branded shops in stores by back-to-school 2015.

And as mobile commerce surges, Penney’s is looking to get its share by upgrading the functionality of its site to provide customers the necessary seamless shopping sought today. Through an enterprise-wide inventory network, customers will be able to get same day pick-up and same day delivery for their Penney’s merchandise.

Penney’s posted its second quarter results August 14, with net sales up 5 percent to $2.8 billion from last year’s $2.66 billion, and same store sales up 6 percent—the third consecutive quarter for growth. EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $90 million, up $342 million from the previous year. The company posted a net loss of $172 million, or $0.56 per share, beating analyst expectations of $0.96 per share, and last year’s devastating $586 million second-quarter loss.

The company revised its third quarter sales guidance to reflect softer selling than expected in September owed to lower levels of clearance compared to last year, and the “continued difficult retail environment.” Penney’s now expects Q3 comparable store sales to be in the low-single digit range compared to its original mid-single digit projection.

In looking to the future, Penney’s said it intends to achieve $1.2 billion in EBITDA in 2017, which reflects improvements tied to incremental growth potential and continued market share gains, representing a $3.5 billion sales opportunity.

Edward Record, Penney’s chief financial officer, said, “JCPenney is gaining back market share, increasing sales and improving gross margins, while continuing to tightly manage expenses.” He added, “By successfully focusing on our core business strengths, we delivered three consecutive quarters of positive sales and developed a strong foundation for growth. We are excited about the initiatives we laid out today and remain focused on restoring profitability and delivering long-term value to our shareholders.”

Ullman said Penney’s had the same number of active customers in July as it had in 2011. “We’re back. We’re driven. We’re once again competing effectively,” he said.