JCP Reports $2.9B in Q3 Sales, Installs Pricing Analytics Team

J. C. Penney Company, Inc. reported net sales of $2.90 billion in the third quarter of 2015, compared to $2.76 billion in the same quarter last year. Same store sales increased 6.4 percent for the period.

CEO Marvin Ellison said, "The continuation of our strong sales performance this quarter demonstrates ongoing progress towards achieving the company's long-term financial targets. We grew the top line, improved margin and intensified our expense discipline.  As we look ahead to the fourth quarter, we are well positioned to compete effectively during the key holiday shopping period thanks to the hard work and dedication of all our associates."

Ellison continued, "While there is significant work to do to improve our company, the JCPenney team remains determined to regain our status as a world-class retailer."

JCP is taking a cue from 2014's holiday results to prepare for this year's critical shopping period. Ellison, who joined the company in Nov. 2015, spent a lot of time in stores last winter familiarizing himself the the retailer's operations. "I heard overwhelmingly and saw with my own eyes we were literally out of business in sheets, in towels, in underwear, in boots, just basic fundamental categories that you need to drive the business," he said during the third-quarter earnings call. As such, JCP has made "strategic investments" in those categories to ensure there's an opportunity to convert foot traffic that is expected in stores following holiday marketing pushes.

The retailer also is assembling a pricing analytics team that will focus initially on size optimization, assortment, and item planning with its new merchandising systems. "We're in the early innings of this system, and the more we use the system, the better we are," Ellison said, adding that the buys made for the current season were done using the platform.

For the third quarter, all merchandise divisions had positive comp sales gains over last year. Men's, home, footwear, handbags, and Sephora were among the company's top performing divisions. Geographically, all regions experienced sales growth compared to the same period last year, with the best performance in the southern and western regions of the country.

Gross margin in the quarter improved by 70 basis points, on top of a 710 basis point improvement in the third quarter of last year, to 37.3 percent of sales, driven by improvements in clearance and promotional selling margins and supply chain productivity.

SG&A expenses for the quarter were down $41 million to $947 million or 32.7 percent of sales, representing a 300 basis point improvement from last year. These savings were primarily driven by lower store controllable costs, more efficient advertising and improved private label credit card revenue.

EBITDA improved $5 million to $107 million for the quarter. On an adjusted basis, EBITDA improved by $83 million to $108 million, despite the negative impact from the recent settlement of a class action lawsuit.  In the third quarter, the company showed a 27 percent improvement in net income over the prior year to a loss of $137 million or $(0.45) per share.

2015 full-year outlook

The company's 2015 full-year guidance is as follows:
  • Comparable store sales: expected to increase 4 percent to 5 percent;
  • Gross margin: expected to improve 100 to 150 basis points;
  • SG&A: expected to decrease approximately $120 million;
  • Adjusted EBITDA: approximately $645 million;
  • Depreciation and amortization: approximately $615 million;
  • Interest expense: approximately $415 million;
  • Capital expenditures: approximately $300 million; and
  • Free cash flow: expected to be breakeven.

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