J.C. Penney (JCP, Financial) is on a roller coaster ride since the company posted impressive numbers in the fourth quarter earlier this year. J.C. Penney reported a lower-than-expected loss of $0.68 per share as compared to a loss $0.85 per share. Also, the retailer was able to gain momentum as it reported its first quarterly sales gain since the second quarter of 2011. But, the retailer has to now sustain this incredible boost in the midst of cut-throat competition arising in the industry.
Quality progress so far
Penney‘s turnaround strategy revolves around three phases, including immediate stabilization, rebuilding, and the go-forward phase. J.C. Penney is done with the preliminary phase and the second phase, and is now focusing on the go forward phase.
J.C. Penney looks solid as it has strengthened its relationship with domestic and international suppliers by sharing its turnaround policies with them. This has brought more clarity within the company as well as with its suppliers. Also, it’s merchandising and marketing strategies have stood tall so far, as it has now reconnected with its core customers that should drive its sales in the upcoming quarters.
Besides, the company is aggressively investing in inventory at specific time periods such as before reopening of schools and ahead of the holiday season to meet the anticipated customer demand that should increase its productivity. Also, it has now brought popular brands as per customer requests to its locations, while clearing out unproductive inventory, thus increasing its operational efficiency. Penney has also improved the online experience of its customers by merchandizing assortments and restoring inventory levels.
J.C. Penney might see softer results in the initial period of its third phase that could impact its margin as it has shuttered several underperforming brands, which were not a part of this phase. But, at the same time, it has also right-sized some of its brands such as Joe Fresh, Michael Graves Design, Conran, and some other brands in the home segment that should offset the softer results. However, management expects a positive impact in 2014 as these brands are picking up pace in the market.
Making the right moves
In addition, Penney is working very aggressively to increase its assortments and is planning to bring back important private brands such as St. John's Bay, A.N.A., Ambrielle, and Xersion to its locations as customers have strong connection to these brands. As a part of its diversification, it is now focusing on bedding and bath, small electrics, decorative accessories, and home furnishings, which will fit its customers' budget and lifestyle and drive its operational and financial results.
Apart from this, the company is planning to close around 33 underperforming stores, which it expects to complete by May this year. On the other hand, Penney has plans to open a new store at Brooklyn, New York. It plans to open another 46 new Sephora stores inside J. C. Penney, which will bring the total number of Sephora locations at J. C. Penney to 492 by the year-end.
Looking forward, management is positive about its performance considering the tough situation prevailing in the retail environment. It expects gross margin to improve in the first quarter of 2014, as well as for the full year. In the words of CEO Mike Ullman, “The long-term goal is to return to historical gross margins and silly grow our sales volume to regain market share, leverage expenses and return to profitable growth.” Although this will take some time, but Penney has realistic plans in place and hopes that it would once again lead the American retail industry.
Conclusion
J.C. Penney looks solid as the company has almost completed the turnaround phase and is expected to bounce back with tremendous growth prospects going forward. Also, based on its performance in the fourth quarter, we can assume that the company is set to get better.
