It’s too soon to say J.C. Penney Co. Inc. has an effective turnaround strategy in place, but a fourth-quarter earnings beat and the addition of a new chief merchant has the mass market retailer seemingly off to a good start for fiscal year 2019.
As the retailer looks to change its fortunes in the new fiscal year, it will have help from Michelle Wlazlo, who will join the company on Friday as executive vice president and chief merchant. She reports to the company’s chief executive officer, Jill Soltau. Wlazlo most recently was senior vice president of apparel and accessories merchandising at Target Corp., where she helped lead and implement a robust merchandising program that included the launch of 15 new private label brands. Before that she had a 19-year tenure at Gap Inc. in a variety of roles across different divisions.
Also new to the retailer are John Welling as senior vice president, planning and allocation and Mark Stinde as senior vice president, asset protection. Welling was most recently senior vice president of merchandising operations for The Michaels Cos., while Stinde was at 8-Eleven serving as vice president of asset protection.
In a Nutshell: Penney’s on Thursday surprised the investment community with an earnings report for the quarter that bested Wall Street’s adjusted diluted earnings expectation by 7 cents, and also managed to meet revenue estimates of $3.79 billion. Investors were very pleased, and sent shares of the stock up 21 percent to $1.50 in Big Board trading early in the morning’s trading session.
Soltau said during her meetings with store associates, suppliers and customers, she became “even more convinced” that the company has the capacity to deliver improved results, and has already taken steps to drive improvement in key businesses such as women’s apparel, active apparel, and special sized apparel. Other decisions have also included the elimination of non-core and low gross margin product categories.
The company said it plans to close 18 full-line stores for the year, including the three is said it would shutter in January, and nine ancillary home and furniture stores. These stores will close their doors during the second quarter of 2019.
The store closures reflect the decline in sales for the quarter, compared with year-ago figures, and the change in direction in merchandise mix as Soltau moves away from furniture and appliances and focuses more on apparel and soft home goods. But if the proof is in the pudding and sales don’t rise as much as expected with the planned merchandise changes, the retailer could be in a position to shutter more stores as the year progresses.
Sales: For the quarter ended Feb. 2, total revenues fell 8.4 percent to $3.79 billion from $4.14 billion, which included a sales decline of 9.5 percent to $3.67 billion from$4.05 billion. The balance of the revenues was from credit income. Comparable-store sales fell 6 percent, versus a 2.6 percent gain a year ago. On an adjusted basis due to a shift in the calendar, comps fell 4 percent, better than the Factset consensus of down 4.5 percent. The retailer said jewelry, women’s apparel, children’s apparel and men’s apparel were the top performing divisions during the quarter.
Earnings: Net income decreased to $75 million, or 24 cents a diluted share, from net income of $242 million, or 77 cents, in the year-ago quarter.
The company said at year-end, cash and cash equivalents were $333 million, while inventory was down 13.1 percent to $2.44 billion compared to the end of fiscal 2017. Liquidity at year end was $1.9 billion.
For the first half of the year, Penney’s said it expects to record a pre-tax charge of $15 million connected with the store closures. The charge is primarily for non-cash asset impairment and transition costs.
More importantly, Penney’s said for its outlook that it expects “free cash flow to be positive for fiscal year 2019.”
CEO’s Take: Soltau said, “While we are pleased with these actions, we know we need to move faster to re-establish the fundamentals of retail, build capabilities focused on satisfying our customers’ wants and needs and ensure that our digital and store operations operate seamlessly to provide an experience that wins with customers.”