JC Penney is hoping to get back on a path to return to profitable growth

JC Penney is hoping to get back on a path to return to profitable growth

Department store retailer JC Penney is facing a number of headwinds as it scrambles to stabilise its business after a previous turnaround effort failed.

Speaking to analysts yesterday (20 August), interim CEO Myron (Mike) Ullman said that since returning to the company four months ago, "we have been focused on moving as quickly as possible to stabilise the business not just financially, which we've made a meaningful progress on, but also operationally - including merchandising, marketing, store experience, jcp.com as well as the leadership team."

But, like the rest of the retail industry, he added: "We're facing the headwinds of declining mall traffic, and a difficult retail environment; these are factors we cannot control. However, the key to our turnaround is addressing the number of operational issues that we can control."

He emphasised that the company "knows where the problems are", it knows how to address them, and has "the right plans in place to do the job successfully and get back on a path to return to profitable growth".

The comments came as the company saw second quarter net losses widen to US$588m, from a US$147m loss in the same period last year. Net sales fell 11.9% to $2.66bn, while comparable store sales also dropped 11.9%.

Ullman blamed former CEO Ron Johnson's failed transformation strategy as the root of the company's continuing problems.

"It's no secret that the company's prior merchandising and promotional strategies weren't working. We had to make changes.

"But these changes take time and they have financial implications whether in the form of additional markdowns, investments in additional inventory, or investing in additional staff store hours; we had to get back by listening and putting the customer first," he said.

This meant the company had another season of dumping stock that the prior management was unhappy with, leading to a fall in margins to 29.6% of sales, from 33.2% in the same period of the prior year.

Indeed, Ullman said that in August last year the retailer "dumped a lot of inventory" with clearance accounting for almost 35% of sales.

Reinstating the proportion of private label product to over 50% of its range is another key focus for the interim CEO. He said the company has had to "restart basics and sizes," with that inventory now in its assortments.

A reduction in private label products under Johnson's tenure significantly impacted profitability as well as attraction for its core customers. As Ullman explained: "When she comes two or three times and doesn't find St John's Bay, it was a US$1bn brand that was just eliminated from our assortment in women's."

While the company has returned to a more promotional stance after Johnson's focus on every-day low prices, Ullman emphasised that the percentage of stock on clearance will " actually improve sequentially as we work our way through the old inventory".

Conceding that the efforts by the previous management team mean the stores have "never looked better", Ullman said he expects traffic to improve now that the company has the right inventory.

"Now that we're in business in inventory, we would expect to do well," he said.