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J.C. Penney to Ramp Up Private-Label Rollout, Announces “Penney Days” Promotion

J.C. Penney bucked this week’s trend of dismal department store earnings when it reported a fourth-quarter increase in comps.

The department store operator said Friday that for the three months ended Jan. 30, same-store sales rose 4.1%. That was slightly below the year-ago period’s growth levels of 4.4%, but still better than its peers’ performances last quarter, which included the crucial holiday selling season.

“In fact, this represents our ninth consecutive quarter of growth, when you take into account that our flat comps in Q3 of last year were positive,” Marvin Ellison, chief executive officer, said on a conference call with analysts, noting that on a monthly basis, the retailer saw sequential comp improvement from November to December and from December to January.

“We believe our ability to gain share in a relatively flat to negative retail market is not accidental or happenstance,” he added, pointing out that stores executed markdowns based on flow, customer traffic and demand and weather patterns, rather than traditional calendar clearances.

Net revenue was $4.0 billion in the fourth quarter of fiscal 2015, compared to $3.9 billion in the prior fiscal’s final quarter, while gross margin improved 30 basis points to 34.1% of sales. Home, footwear and handbags, as well as Sephora Inside J.C. Penney, were its top performing merchandise divisions. Geographically, all regions delivered comp sales gains over the same period last year, but stores in the West and Northeast came out on top.

The retailer also cut costs by $70 million to $962 million, or 24.1% of sales, during the quarter, citing lower controllable costs, more efficient advertising spend and reduced corporate overhead.

For the full year 2015, J.C. Penney reported a 3 percent increase in net sales from $12.3 billion in 2014 to $12.3 billion, while comps rose 4.5%. Gross margin increased 120 basis points to 36 percent.

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“The reestablishment of key private and exclusive brands like St. John’s Bay, Royal Velvet and Ambrielle, and new brands like the collection by Michael Strahan and Belle and Sky have resonated with existing customers and attracted new customers,” Ellison offered, adding, “All of our apparel businesses saw positive sales results despite the incredibly challenging weather conditions in the [fourth] quarter.”

To that end, J.C. Penney plans to leverage its private-label infrastructure going forward. As Ed Record, chief financial officer, noted, “We are ramping up our penetration of private brands, which carry a higher margin.”

“The most aggressive pricing environment in retail exists online because of the dynamic price scraping,” Ellison continued. “We believe that [private brands] give us a tremendous advantage going up against pure-play e-commerce because we are going to be exclusive sellers of certain brands online.”

On Thursday, the retailer announced the launch of its new value proposition, dubbed “Get Your Penney’s Worth.” The promotion will be unveiled to customers through a spring marketing campaign that includes the introduction of “Penney Days,” when select items from its assortment of private brands will be available for just a penny.

“We want to be the shopping mecca for the modern American mom, which means we need to dimensionalize the idea of worth,” Mary Beth West, chief customer and marketing officer, said in a statement. “The launch of this new brand promise underscores our strategic focus on building private brands and revenue per customer to create sustainable loyalty. If J.C. Penney can help her discover the things she loves more easily, innovatively and consistently than anyone else, we know she’ll come back for more.”

In addition, the retailer will tweak store assortments based on local needs.

“We are in the early stages of what I call localization from a true assortment plan that is customized from a pricing and from a locale standpoint,” Ellison said, noting, “A better understanding of pricing elasticity allows us to remain competitive while protecting our bottom line.”

Looking ahead to fiscal 2016, comps are expected to increase by as much as 4 percent, while gross margin is expected to grow 40 to 60 basis points versus 2015.