JCP - JC Penney

[Guest valueInv]

The relevant section from that article:

===

 

The company is generating $269 of sales per square foot at the eight boutiques introduced in August and September, which include Levi's and PVH Corp's (PVH.N) Izod as well as a new private "jcp" brand, compared with $139 in the old parts of its stores.

 

In a statement when the quarterly results were made public, Johnson, who took the reins at J.C. Penney a year ago, said this was a "tale of two companies," with the old Penney still struggling and the new stores surpassing his expectations.

 

But the boutiques, which Penney expects to complete by 2015, and which will eventually house brands such as Martha Stewart, Nanette Lepore and Michael Graves, still represent only 11 percent of the company's selling space in its stores.

 

Despite the sales hemorrhage, Johnson has the full backing of activist investor William Ackman, whose Pershing Square Capital Management is Penney's largest shareholder and who was at Friday's presentation.

 

"It's about the shops. That's the future of the company," Ackman told Reuters.

 

Why are gross margins dropping? Shouldn't they be better with the elimination of discounts?

[thomcapital]

Why are gross margins dropping? Shouldn't they be better with the elimination of discounts?

 

See slide 18 of today's call presentation. Clearance and markdowns were the biggest drag YOY. The new pricing scheme added 360bps to GM, everything else took it down -850bps.

[PlanMaestro]

The company is generating $269 of sales per square foot at the eight boutiques introduced in August and September, which include Levi's and PVH Corp's (PVH.N) Izod as well as a new private "jcp" brand, compared with $139 in the old parts of its stores.

 

 

Ackman, with all the usual caveats:

 

Even though 80% of J.C. Penney's stores are in shopping centers with more than $300 per square foot in sales, JC. Penney's sales are still suck at mid-nineties levels, Ackman said. At $250 per square foot in sales, J.C. Penney could be worth $191 a share, or $315 a share if J.C. Penney was able to generate $350 in sales per square foot.

 

J.C. Penney's average sales are $132 per square foot, although new CEO Ron Johnson is working to improve that by turning the company into a "mall within a mall," Ackman said. J.C. Penney stores currently feature outlets from Sephora, but will now have new stores from companies such as Nike (NKE), Levi Strauss, Buffalo, and others.

 

 

[fareastwarriors]

The JCP I went to couple of weeks ago looked pretty nice. It had a fair amount of peeople in the store. I went on a Sudnay afternoon. It wasn't prime time shopping time but the store wasn't deserted like the last time I went ,maybe 6 months ago.

 

Everything looked great. The prices I thought were very resonable. I ended up buying dress shoes, some shirts, and a pair of slacks. I was happy with my purchase.

 

I guess my sale wasn't enough to help the bottom line...

:P

[ItsAValueTrap]

Same store sales down a shocking 26.1%.  This is rather extreme and unusual in the retail industry for SSS to drop so much.  The slide in SSS suggests that the current approach is not working and that management is making the company worse, not better.  I'm not sure exactly what is driving same store sales even worse.  My best guess would be that the reduction in staff (and shifting labour from their old more experienced workers to new cheaper hires) is affecting sales. 

 

I can't find too many good things to say about this quarter. 

 

2- Apparently their private label brands such as St. John's Bay actually has a lot of fans.  If you read JCP's facebook page, you see that a lot of shoppers are unhappy that these products are being phased out.

This could also explain the drop in SSS, though I think it may be more likely that it is due to the drop in staff.

 

3- Based on the numbers, the evidence would suggest that management is destroying the company.

[thomcapital]

Ackman, with all the usual caveats:

 

Even though 80% of J.C. Penney's stores are in shopping centers with more than $300 per square foot in sales, JC. Penney's sales are still suck at mid-nineties levels, Ackman said. At $250 per square foot in sales, J.C. Penney could be worth $191 a share, or $315 a share if J.C. Penney was able to generate $350 in sales per square foot.

 

J.C. Penney's average sales are $132 per square foot, although new CEO Ron Johnson is working to improve that by turning the company into a "mall within a mall," Ackman said. J.C. Penney stores currently feature outlets from Sephora, but will now have new stores from companies such as Nike (NKE), Levi Strauss, Buffalo, and others.

 

 

Do you have a new update from Ackman, or is this just from his original presentation? I pulled up the presentation after reading the transcript/earnings slides to compare his sales sensitives vs. what JCP put up this quarter, exactly what you posted.

 

With the new shops doing so well, do you think this is just representative of JCP picking the lowest hanging fruit, or do you think the incoming shops will be as productive?

 

I'm hoping Ackman will address this in one of his upcoming letters.

[PlanMaestro]

Do you have a new update from Ackman, or is this just from his original presentation? I pulled up the presentation after reading the transcript/earnings slides to compare his sales sensitives vs. what JCP put up this quarter, exactly what you posted.

 

With the new shops doing so well, do you think this is just representative of JCP picking the lowest hanging fruit, or do you think the incoming shops will be as productive?

 

I'm hoping Ackman will address this in one of his upcoming letters.

 

Lost the link to Ackman comments, but I think it was today.

 

What is important is the increase on assets turns. 30% for the new shops according to the presentation. That kind of improvement should be something they could replicate in the rest of the new stores, but it is still very low when you consider they have $130/sqf in the old stores.

 

Actually, the game is to shoot for improvements much higher than that:

 

(1) I would say that it takes 9 months to a year for a new store to get to 70% of LT sales, and 3 years to achieve maturity. So there is still a lot of room for improvement in the new stores.

(2) The game is about reaching new customers, so if JC Penney achieves changing its image and reaching those new customers it could compound the impact.

 

The current numbers are awful, and I have doubts on how they are spinning them. For example, the $269/sqf includes Sephora that sell over $600/sqf and it is not a new store.

 

However, there is a road forward and I think that in 6 months we will start to see if it is working.

[PlanMaestro]

Ackman,

http://video.cnbc.com/gallery/?video=3000129020

[bmichaud]

Sorkin is an effing dickhead. WOW

[Cardboard]

As recession fears start to grow and maybe a real one occurs, this stock will go under more and more pressure. We could also see the same thing as with Sears when we heard about suppliers being worried of not being paid. It is on my watch list and I will be looking to add since I believe that Ackman and Johnson are onto something. The stock market will never like a 3 year plan, but I am thinking that this will work and even if it does not work, the real estate alone will allow for a nice margin of safety and profitable exit if paid at the right price. $12 to $15 range seems right, but we will see how desperate the market gets.

 

When Ackman talks about new popular brands being able to go national in the most visible malls instantly in their "own" shop with their own cachet and without creating real estate and distribution I think that there is a lot of value to that. Any retailing start-up will have to think long and hard about that option vs the traditional expansion.

 

Cardboard

[Kraven]

Sorkin is an effing dickhead. WOW

 

I would have to disagree.  If he was a dickhead it would be a huge improvement.  If he ever develops into a better analyst he has dickheadedness to look forward to someday.

[bmichaud]

Sorkin is an effing dickhead. WOW

 

I would have to disagree.  If he was a dickhead it would be a huge improvement.  If he ever develops into a better analyst he has dickheadedness to look forward to someday.

 

hahahahah

[Guest rimm_never_sleeps]

wouldn't be at all surprised if he is good friends with BA. AS was tough on buffett and it did not hurt his relationship with him because he is respected by real business people. these cnbc people can't stand giving people 3 minutes to explain something.

[txlaw]

JCP has been on my watch list for a while. 

 

I am waiting to see how things turn out this holiday season, and then I will make a decision on whether or not to put any money into it.  As Plan explained before, this holiday season may be lost, and the market's not gonna like that, so I figure I will have ample time to buy next year.

 

Sorkin was being a jerk, but he did express a lot of the misgivings that have been expressed on this thread, and it was interesting to hear some of the responses from Ackman.  The most interesting response was Ackman's insistence that JCP is not abandoning their core customer.  Debatable, certainly.

[hardincap]

Ackaman should partner with Vornado and private equity to take this private, so management can focus on executing their turnaround without creating constant negative press over declining financials. All this negative press has got to be weighing down heavily on the business.

[PlanMaestro]

Digital disruption and retailer opportunities (Bain)

http://www.bain.com/Images/BAIN_BRIEF_Retail_holiday_newsletter_%232_2012-2013.pdf

[PlanMaestro]

3 JCP Women $151 $298 97%

4 JCP Men $152 $121 -20%

8 Arizona $235 $207 -12%

 

 

JCP women, huge success. Arizona and JCP men not so much. Judging by the numbers of the other stores, the new Liz Claiborne at least is doing well (important).

 

JCP Men: The main problem (as identified on the call, and as noticeable when in the stores) was the product assortment, with way too many bright colors like oranges and purples… will be fixed for February (the next time the company reports earnings).

[PlanMaestro]

From the call. Interestingly it looks like they will clear old inventory this year and they are managing to keep the Liz Claiborne customer (old customer that pays full price). So there are a few green shoots in those scary numbers.

 

Shop two interestingly is JCP Men’s, interesting that space we took was comparable, but we did not execute the Men’s shop correctly. I love it. I’m wearing JCP Men’s today, that’s what this sweater is, but I’m wearing one of the few basic colors we put in that shop. If you walk through that shop, there are way too many bright colors, there's oranges and purples and it looks great, but when you’re really looking what men, they buy navies and greys and they buy basic items. So we get too fashionable. So we already at, we saw that result in August (sell these fixed) for February 1. So we expect pretty immediate improvement in the JCP Men's shop.

 

The other shop that went down was a surprise to us. It was the most productive space we took over was Arizona Men’s. Arizona is a brand we’ve been in 30 years. We’ve got to say, why would you go down in Arizona, you put the shop in and will it becomes the art of merchandizing. As we created our shops, we now have shop buyers who buy bottoms and tops. Historically, we had bottoms buyer and tops buyers.

 

What turns out in Arizona, and this is a nuance for you really merchant types, our top to bottom ratio was only 0.4 to 1. So the Arizona bottoms are off the charts in these shops. We didn’t buy the right tops and enough tops. Historically, the top to bottom ratio in Arizona was 1.5 to 1. We’re fixing that for spring. We’re going to get our tops right. We’re going to buy that right. It’s one of the learns. So we expect to see immediate improvement in our Arizona shop, which will ultimately raise our productivity.

[thomcapital]

From the call. Interestingly it looks like they will clear old inventory this year and they are managing to keep the Liz Claiborne customer (old customer that pays full price). So there are a few green shoots in those scary numbers.

 

I wonder how much of the inventory problem came from mgmt. housing cleaning vs. the impact of new shops (and cycling out the old product to make room for the new shops / brands). Looking ahead, I can't help but wonder whether inventory (read: clearance) will be an ongoing problem as JCP moves through 10:40:100 shops. Not to mention the impact of construction on sellable SF.

 

Although probably not very insightful, I intend to visit my area's two stores on Black Friday, one at 6am and one after work and will report back. Gotta get those buttons!  :)

[DCG]

I like Ron Johnson and want to like JC Penney, but every time I go there I can't find anything worth buying. It's a collection of mostly crappy brands. Redesigning the stores can only go so far. You need quality products and brands. I can find more clothes I like at department stores like Macy's, Bonton, and even Sears.

 

 

[wolfgang1]

Do you have a new update from Ackman, or is this just from his original presentation? I pulled up the presentation after reading the transcript/earnings slides to compare his sales sensitives vs. what JCP put up this quarter, exactly what you posted.

 

With the new shops doing so well, do you think this is just representative of JCP picking the lowest hanging fruit, or do you think the incoming shops will be as productive?

 

I'm hoping Ackman will address this in one of his upcoming letters.

 

Lost the link to Ackman comments, but I think it was today.

 

What is important is the increase on assets turns. 30% for the new shops according to the presentation. That kind of improvement should be something they could replicate in the rest of the new stores, but it is still very low when you consider they have $130/sqf in the old stores.

 

Actually, the game is to shoot for improvements much higher than that:

 

(1) I would say that it takes 9 months to a year for a new store to get to 70% of LT sales, and 3 years to achieve maturity. So there is still a lot of room for improvement in the new stores.

(2) The game is about reaching new customers, so if JC Penney achieves changing its image and reaching those new customers it could compound the impact.

 

The current numbers are awful, and I have doubts on how they are spinning them. For example, the $269/sqf includes Sephora that sell over $600/sqf and it is not a new store.

 

However, there is a road forward and I think that in 6 months we will start to see if it is working.

On the presentation they broke out the numbers with and without Sephora. With was $269/sqft. Without was $239.

[thomcapital]

Although probably not very insightful, I intend to visit my area's two stores on Black Friday, one at 6am and one after work and will report back. Gotta get those buttons!  :)

 

I visited my closest JCP this AM before work. I got in line at 5:45am, and stood at one of the two entrances outside in 25' temp. / snow. It was tough for me to gauge how many people were in line in total. I counted about ~30 outside, but the main line came from in the mall, probably another ~250 or so. Since I didn't shop last year unfortunately I can't compare. This store is one of several anchors/ jr. anchors including JCP, Gordmans, Dicks, Sears and a Boston Store. It is a full-sized JCP with two storys and all the new shops, but does not have a Sephora.

 

My experience:

I went up the escalator to the mens dept to buy some pants/shirts. The vast majority of the people who went up to the 2nd story did so to buy the $8 appliances, the ~30 or so of each were gone in seconds. Some continued to shop, but I had no real competition through the mens clothing area(s). My checkout time was about 20 minutes, and I noticed the clerks were not voluntarily handing out buttons, but a few people (including myself) did ask about them and were handed 3 buttons each.

 

Downstairs, the shoe section was in elbow to elbow chaos, definitely the most crowded area of the store. I don't know what all the best sales were, but people were fairly well dispersed - including in jewelry. There were shoppers all over the main level. I looked for a couple JCP branded basics long sleeve shirts for my wife at $6/ea. but they were already out of her size (Med.) in all the colors I thought she'd like (except orange, etc.)

 

It turns out you can only enter two button codes per day (including two annoying captchas per each). My first was a loser, but my 2nd gave me $5 off a $5+ purchase. It must be redeemed within 48 hours.

 

edit: Redeemed means you enter your contact info and more captchas. I assume they are mailing me the $5 off "gift". I was planning on visiting the other JCP in town this afternoon but won't be able to make it.

[BG2008]

I went to 2 JCP on Long Island, Green Acres Mall and the Grand Daddy of them, Roosevelt Field Mall.  I didn't go last year, so there is little YOY comparison to be made.  I can only compare traffic to my occasion visits in the past couple of months. 

 

Overall, the traffic at the Green Acre Mall was nice.  There were 10+ ppl standing on line at most registers.  Although, I would attribute the line to the cashiers being inefficient.  I went around 3:30PM on Black Friday.  Relative to Macy's and Kohl's in the same Mall, the customer density (ppl per 1,000 SQFT) is probably about the same.  The store does not have Sephora and the racks look like they've been picked over indicating shopper traffic through out the day.  The ambiance in the store was rather depressing, lights were dim, and the store does not have all the fancy finishes like the Roosevelt Field Mall.  But the traffic was satisfactory.  This Mall is considered lowered end on Long Island and they literally have vans that truck in Hispanic/African American shopper from Queens and Brooklyn to shop at the mall.

 

The density at Roosevelt Field Mall was lower than the Green Acres Mall.  However, the density is a substantial improvement over normal traffic.  During my previous visits, there were scant traffic at this location.  But, density is probably 5x the normal traffic.  The customer density is comparable to that of Macy's at the same mall. 

 

I don't think that I can conclude whether JCP has turned the corner based on these two observations.  I went to these two locations to see signs of permanent impairment of the turn around thesis.  The rationale is that, if traffic did not improve over normal traffic despite Black Friday, buttons, and their price slashes, I would be very worried. 

 

All I can tell from this observation is that "The Thesis Is Not Dead Yet"

[mysticdrew]

Great feedback BG and thom!  Good to hear at least hear they weren't desolate!

[thomcapital]

I went back to my local JC Penney's today to use my $10 "holiday certificate". The store had some shoppers (1-3 per shop/area? with more in womens vs. mens), so it wasn't completely deserted; about what I'd expect for a post-Thanksgiving Monday at 4:30pm.

 

I talked to several employees, and was trying to get a feel for how Black Friday was vs. their expectations. The common response was "okay".