JCP 3-Year Strategy Focuses on Brand Mix, Store Attractions

10/10/2014
At its 2014 analyst meeting in New York City, J. C. Penney presented its plans for restoring sustainable profitable growth at the company over the next three years.

"JCPenney is in a far stronger position today than it was when we began our turnaround effort 18 months ago. While we recognize that there's more work to be done in a highly competitive retail environment, I couldn't be more encouraged by the significant progress our teams have made in such a short amount of time," said Mike Ullman, III, CEO. "I am confident that the initiatives we are putting in place will fuel new growth and earn greater customer loyalty as we pursue our vision to become the preferred shopping choice for Middle America."

Compelling customer proposition
Senior leadership attributed the company's progress and enhanced outlook to a renewed focus on the compelling customer proposition that differentiates JCPenney in the marketplace. The company has rebuilt and reestablished the right merchandise assortment, including:
  • Powerful private brands;
  • Sought-after national brands; and
  • Exclusive attractions that its customers value and can only be found at JCPenney.
JCPenney is also demonstrating digital leadership by advancing the mobile commerce functionality of jcpenney.com, providing customers enhanced options to shop, ship or pick up their JCPenney merchandise. This includes putting in place an enterprise-wide inventory network that will enable several customer-centric capabilities, such as same day pick-up and same day delivery, creating a seamless customer experience. Finally, company leadership outlined how associate engagement - integral to building customer loyalty - has significantly improved across the company enabling teams to achieve customer service scores that are at an all-time high.

Incremental growth opportunities
During the analyst meeting, the company's senior leaders identified three areas of the business that are expected to generate incremental sales growth between 2015 and 2017. These initiatives include:
  • Revitalizing the highest traffic area in the store - center core - as a leading destination for beauty, jewelry and fashion accessories;
  • Improving the productivity of the Home Store with value-driven products and a tailored promotional strategy; and
  • Maximizing the power, reach and integration of the company's omnichannel capabilities.
Store attractions update
The company is focused on attracting a new and younger customer by investing in popular in-store attractions that can only be found at JCPenney. To that end, the company announced the expansion of its highly successful partnership with Sephora, as the companies have agreed to open additional Sephora inside JCPenney locations through 2017, entering new and smaller markets as the first major beauty destination in town.

JCPenney is leveraging its position as the only U.S. department store retailer carrying an exclusive assortment of Disney merchandise by opening more than 100 additional Disney-branded Shops inside JCPenney by back-to-school 2015. The company has also entered into an agreement with Hallmark to test a Hallmark shop concept carrying greeting cards, gifts, ornaments, holiday dÉcor and more in 15 JCPenney stores this fall, including a newly opened Hallmark shop within the Home department at its Frisco, Texas location.

Financial goals for 2015-2017
The company also provided financial performance goals that include achieving $1.2 billion in EBITDA in 2017. This reflects expectations for top line improvements associated with incremental growth potential, as well as continued market share gains in its underlying business, which represents a $3.5 billion sales opportunity. Of that amount, the company conservatively expects to realize approximately $2 billion in incremental sales over the next three years, resulting in mid-single digit sales growth during that period.

Revised third quarter 2014 guidance
The company revised its third quarter sales guidance to reflect softer selling than expected during the month of September due to lower levels of clearance compared to last year and the continued difficult retail environment. The company now expects comparable store sales for the third quarter of 2014 to be in the low-single digit range, compared to its original guidance of mid-single digit growth. The company reaffirms all other guidance for the third quarter and full fiscal year 2014, which includes delivering mid-single digit comparable store sales growth and positive free cash flow for the year.

"JCPenney is gaining back market share, increasing sales and improving gross margins, while continuing to tightly manage expenses," said Edward Record, CFO. "By successfully focusing on our core business strengths, we delivered three consecutive quarters of positive sales and developed a strong foundation for growth. We are excited about the initiatives we laid out today and remain focused on restoring profitability and delivering long-term value to our shareholders."
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