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This Retailer's Turnaround Is an Opportunity for Investors

July 29, 2014 | About:

Retailer J.C. Penney's (NYSE:JCP) shares have stayed level so far in 2014. Of course, the stock has got up an impressive 72% since the end of February, fueled by a couple of impressive quarterly results. Penney has beaten analysts' estimates comprehensively in the last couple of quarters, signifying that its turnaround is solidly on track. Mike Ullman is pulling the right strings, and investors have preferred Penney's recuperation.

On the other hand, will the stock continue rising proceeding? Chances are that it may scale new highs as Penney's strategies look sound, and it should continue showing signs of change. We should see why.

Strategies yielding results

J.C. Penney is re-trying itself in three stages. The first is the stabilization phase, imitated by the adjusting phase in the third and fourth quarters of last year. The last stage is the go-ahead phase, in which J.C. Penney is continuously positioned for profitable improvement in the long run.

The first two phases of the turnaround were finished by strengthening teams in the association, and the stabilization of its operations and financials. Penney also strengthened parts of the business that were indispensable to its long term success.

All through this phase, J.C. Penney has been focused on refinement of its merchandising and pushing strategies and aims to steadily create sales and significantly upgrade gross margins. In addition, it is tightening and managing its expenses to return to profitable advancement.

The first-quarter results of the association reflect its progress. Administration is enthusiastic to have surpassed its sales course and pass on 6.2% same-store sales improvement for the quarter, or 7.4% advancement under the new sales reporting method. Penney saw sequential change in sales in every month of the quarter. The Easter occasion incited a robust performance in April, helping it pass on better-than-expected results.

Through and through, the first quarter performance of J.C. Penney was in line with its plans of business expansion and helped it snatch bit of the general industry from competitors. So, Penney is moving in the right course, and a closer look at its strategies suggests that the robust performance should continue.

Smart moves

Penney is improving its merchandising assortments for ladies' and men's apparel, home, and fine gems. As a result, these have transformed into the association's top performing merchandise divisions. So, Penney's redesigned merchandise assortments have been recognized well by its focal point customers. Besides, J.C. Penney has attempted a whole lot several impressive efforts to ensure that its customers discover what fits and suits their style, including essential private and national brands as well as exclusive brands like Liz Claiborne and Modern Bride.

Also, private brands such as St. John's Bay, Worthington, Stafford, J. Ferrar, and Xersion are performing commendably. J.C. Penney's in-house design teams have safeguarded the association produce solid products that are grabbing balance with customers, and helping it perform before the opposition.

Also, some of the largest national brands such as Levi's, Nike (NKE), Carter's, IZOD, and Van Heusen that Penney carries in its stores are witnessing moved ahead with expansion, which is uncommonly engaging. The strength across these brands is a result of the captivating shopping environment that Penney has made around them.

Also, J.C. Penney has successfully re-impelled its new home store and home collections segments. Likewise, it also focused on sheets and offer small electrics, as well as charging accessories. It now offers a scope of home merchandise to satisfy its customers' budgetary arrange and lifestyle needs. Hence, Penney is making smart moves to bring customers go into its stores and push up sales.

Besides, approximately 30 new Sephora stores have been opened inside J.C. Penney locations last quarter, bringing the total number to 476. Besides, it has also stretched eight existing stores of its highest performing support locations last quarter to increase their visibility inside the store.

The association is also managing by and by to-school and occasion advertising campaigns, and remains sure about its pushing strategy. Also, it is focused on the e-exchange stage, which is the reason JCP.com turned in a solid performance in the previous quarter, inciting a 25.7% increase in online sales.

Controlled by such moves, Penney has had the ability to significantly increase the store conversion typical transaction size and units per transaction. Presently, J.C. Penney will continue focusing on a mix of private-exclusive and national brand merchandise to push up sales and improve margins.

Also, to control costs, Penney is discontinuing some brands like William Rast and Joe. The organization is focused on attracting more young consumers by undertaking such a move. It is also re-trying the home locale, a key driver of customer development. Proceeding, the association expects sales at established stores to increase in the mid-single digits, and the gross margin to improve significantly from last year.

Risks to consider

Notwithstanding, there are sure risks that investors need to recollect. First, Penney has an immense commitment. It has a commitment of $5.6 billion on the bookkeeping report, as showed by Yahoo! Finance. Its cash position is fragile at $1.17 billion. So, Penney is dependent on its acknowledge lines to move ahead for the turnaround as it is burning through cash.


In the previous quarter, Penney evaluated how to secure a $2.35 billion credit. This supplanted its existing credit line of $1.85 billion. As a result, Penney has had the ability to increase its acquiring breaking point by $500 million. Besides, Penney was also prepared to decrease expenses by cutting down corporate support and advertising.

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