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J.C. Penney to Shift Focus From Apparel as Losses Narrow in Q1

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J.C. Penney sang the same tune as the rest of U.S. retail in the first quarter: apparel sales sucked. But unlike its peers, it wasn’t all bad for the Plano, Texas-based department store chain.

Total net sales tripped 1.6% in the three months ended Apr. 30, from $2.9 billion to $2.8 billion, and comparable store sales slipped 0.4%, versus a 3.4% increase in the same period a year ago. However, the retailer also narrowed its losses from $150 million to $68 million. That was an improvement of 54.7%. Inventory, meanwhile, increased 4.1% to $2.9 billion.

“Although our business was not immune to the issues facing other retailers, I am pleased that we were able to deliver our second consecutive quarter of positive operating profit,” Marvin Ellison, chief executive officer, said Friday, noting that while first-quarter sales were below expectations, the retailer is maintaining its annual comp guidance of 3-4 percent as a result of recent sales trends, the strength of its Sephora business and the decision to accelerate its appliance rollout.

Men’s, Sephora and footwear and handbags divisions were the quarter’s top performing divisions, while the North East and Ohio Valley (Western New York through Indiana) did the best geographically.

“At J.C. Penney we know we must continue to pivot our merchandise assortments toward less weather-sensitive categories while providing our customers with more reasons to shop in our stores,” Ellison said on a call with investors. “Candidly, our overreliance on apparel hurt us in times during the first quarter when weather patterns were not conducive to apparel sales and the consumer was simply spending their hard earned dollars on experiences, entertainment and to beautify their home.”

In fact, the only bright spot in apparel was activewear, which Ellison said was significantly up, noting that the retailer’s partnership with Nike as well as its private brand, Xersion, helped drive that growth.

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To that end, Ellison said the retailer would start to strategically shift its merchandise mix to sell more of what consumers are spending the greater percent of their dollars on. He explained that moving forward the team would leverage its private brands infrastructure and 200 in-house designers to increase profits because of a “lack of dependency on third parties.”

“For the first quarter private brands like Arizona, St. John’s Bay, Liz Claiborne, Xersion, Stafford and JCP Home played a key role in our ability to deliver great value for our customers,” Ellison noted, adding that J.C. Penney’s relationship with Michael Strahan would expand in the run up to Father’s Day with the launch of an active lifestyle brand, MSX by Michael Stafford.

Following the “challenging” first quarter, J.C. Penney updated its 2016 full-year guidance to an increase in comps of between 3 percent and 4 percent and EBITDA of $1 billion, while gross margin is expected to improve by 10 to 30 basis points.