J.C.Penney’s second quarter 2015 was a major improvement over the previous year. Same store sales increased 4.1%, gross margin improved 100 basis points and S.G. &A. expenses dropped $63 Million to $901 million or 31.3% of sales. These are great results since they suggest that the company gained back some of its lost market share from Kohl’s and Macy’s in a tough, competitive quarter. I believe J.C.Penney’s management anticipated the shift of tax-free days in Florida, and other states, into the third quarter and planned a very strong sale event to offset any shortfall ca
In the quarter the company reduced its net loss from ($0.56) to $(0.45) a share, a 20% improvement. For the six months the net loss was reduced from ($1.72) to ($1.00) per share, a 42% improvement. For the full year I estimate the company will report a loss of ($1.25) a share compared to a loss of ($2.53) a share. This would be a 102% improvement. With both fingers crossed, I estimate that next year, 2016, the loss will be reduced to less than ($0.90).
This was CEO Mike Ullman’s swan song. He is retiring, leaving the company much improved as he turns the reins over to Marvin Ellison, the new President and CEO. Ullman, who will continue as Executive Chairman of J.C.Penney, leaves a legacy of saving the company from bankruptcy and possible extinction by returning to the helm after Ron Johnson ran the company into the ground. Now management can brag that the once decimated home department, as well as men’s, fine Jewelry, and Sephora did very well in the quarter, with Sephora producing double digit gains. That is exciting to me--particularly since home is seeing a revival as customer acceptance returns. Encouraging for sure, but there is still a long way to go to full recovery.
Marvin Ellison talked about some of his plans going forward. They include a focus on style, quality and value and he hopes to bring that message to his customers. Frankly, I would also add fit to the number of objectives. It would be great if the company would standardize fit with its suppliers so that a size would be the same fit from any source. Similarly, he should go back to J.C.Penney’s long time practice of standardizing colors across all suppliers so that fashion from one source would coordinate with the color palette from another.
In addition Mr. Ellison highlighted two executive appointments that will strengthen the omnichannel growth strategy. They are Michael Amend, appointed executive vice president of omnichannel, he was formerly vice president of online, mobile and omnichannel for Home Depot; and Mike Robbins, now senior vice president of supply chain, he was formerly senior vice president of global supply chain at Target. Ellison indicated that J.C.Penney’s on-line business was way behind the competition, and that he is looking for a major leap forward in the fall of 2016.
Ellison shared that he has been in about 40 stores (about 4% of the company). He feels good about the upkeep of the stores but feels they need better signage. Since a major push on private label is about to happen with style, quality and value as the focus, he believes stronger identification is necessary. While I agree the stores are in good shape from a housekeeping perspective, I think they are antiseptic and boring. Only Sephora has a lively look. Much can be done to improve the look of the stores to help create customer interest. In a brief discussion with Mr. Ellison I shared my view that he should do something to keep customers shopping longer once they are in the store. A coffee bar would help, just as a TV set in the children’s area would keep kids and mothers happy and able to extend their shopping trip.
J.C.Penney lost billions of dollars of market share and now has the opportunity to gain back that lost share from the competition. The company is headed in the right direction thanks to the leadership of Mike Ullman. But the future belongs to Marvin Ellison and his leadership team. I believe the company has all the right ingredients in place and is poised to take back its lost share.
