In the money: JC Penney says turnaround is "taking hold"
Comparable store sales were up by 0.9% in October
The turnaround of struggling department store chain JC Penney is beginning to take hold, according to CEO Mike Ullman. But the US-based retailer still has a lot more work to do if it is to see the light at the end of the tunnel any time soon.
"We're making significant strides toward restoring JC Penney to its rightful place in retail," Ullman told analysts on a conference call yesterday (20 November).
"The work we've been doing over the last seven months to stabilise the business financially and operationally required fundamental changes.
"It's hard work with no quick fixes, but our teams are rising to the challenge and our customers tell us they love the progress we're making."
The comments came after the company saw its third-quarter losses widen to US$489m from $123m, hurt by lower revenues and margins.
But it also said it expects sales to improve during the remainder of the year, building on momentum already being seen in comparable store sales and gross margins throughout the third quarter.
"Our margins are not yet improving as much as sales, but we are making progress," Ullman explained.
During the three months to 2 November, gross margin fell to 29.5% from 32.5% in the same period the year before, dampened by additional markdowns and higher levels of clearance. But, as with sales, gross margins improved sequentially throughout the period.
"Behind our third-quarter results is important progress in areas that are critical to our long term success, including merchandise assortments, marketing, home, and the growing strength of jcp.com, as well as our customer experience," Ullman explained.
Drilling down further, he said that based on an improving conversion trend, "it is clear we've made progress" in terms of merchandise assortments.
Importantly, he added, JC Penney has been able to build appropriate inventory levels across its stores and online, and plan for the holiday season. The restoration of inventory levels and private brands such as St John's Bay, Stafford, and JCP Home "is key" to improving sales the company saw over the course of the quarter.
"While having the right merchandise is enormously important, it's not enough. We need to drive traffic by communicating our value and style proposition in a clear, compelling way."
Ullman said the company started seeing its marketing efforts take hold for back-to-school, but added that its recent performance shows it has made measurable progress in showing customers that "if you want great value, we’re the place to get it".
During the quarter, online sales jumped 24.5% year-on-year, up on a 2.2% fall in the second quarter. The improving trend accelerated through the third quarter and online sales increased 37.6% in October.
On an upward trajectory
The retailer expects to close the year with positive comparable store sales during the fourth quarter. "We feel we have the merchandise, marketing, and the associate team in place to compete this holiday season and win more than our fair share, and that's our mindset," Ullman said.
Although he believes the business has "turned the corner", he emphasised: "There's a great deal still to be done."
"We've fixed many of the problems we've been confronted with, but others remain, and we're working hard to address them.
"While our immediate goal has been to get us our customer back into our stores, the ultimate goal is to deliver consistent, profitable growth over the long term.
"We're not there yet, but if we continue gaining traction and building momentum, we will get there. I'm confident that we have the strategies and people in place to do it."
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