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Summary

  • J.C. Penney’s solid turnaround strategies have resulted in noticeable improvements in the business.
  • Penney is focusing on pushing forth its omni-channel strategies and online growth, and this should lead to long-term improvements.
  • Penney has also been focusing on bringing back its private-label brands as it looks to propel growth.

J.C. Penney (NYSE:JCP), one of America's largest apparel and home furnishing retailers, has been able to stabilize its business financially and operationally in recent times. When everything looked down and out for Penney, the company came out with strong fourth-quarter results, driven by same-store sales growth of 2% and online sales growth of 26.3% year-over-year.

Turnaround strategies at work

As a part of its rebuilding process, Penney has reinforced its merchandise assortments, process discipline, promotions, inventory levels, and is also attracting more customers through various marketing and cost-saving initiatives. Moves such as strengthening jcp.com, holding marketing events, enhancing the omni-channel approach, and closure of underperforming stores has led to a turnaround in its fortunes.

As a result, Penney reported solid improvements in sales and profit margins during the holiday season. More importantly, its comparable sales, including e-commerce, saw single-digit growth in the fourth quarter, a dramatic turnaround from negative values in the previous two quarters.

Going forward, Penney will focus on a number of things to reposition itself to attain profitable growth. The company has undergone two major phases of the three turnaround phases identified by management, namely the immediate stabilization phase and rebuilding the business. Penney is on its way to implement its third rebuilding phase, the go-forward phase, in the current fiscal year.

The company has seen significant improvements since the adaptation of the first two phases. Its store conversion, average transaction size, and units per transaction were up in the previous quarter. In the third phase, Penney plans to open a new store in Brooklyn, New York.

Penney is also conducting various marketing campaigns to target the right customer segments through the right channels. It is engaged in customer research and segmentation with its omni-channel strategy that is centralized for creating seamless customer experiences between J.C. Penney stores and jcp.com. With these initiatives in place, Penney estimates comparable store sales growth of 3%-5% in the current quarter in fiscal 2014.

Getting more efficient

Penney is also focusing on inventory management, as the company has removed underperforming brands from its inventory, and closed down stores which had minimal footfall and low returns. Going forward, the company will be investing more in brands and stores that are yielding high returns. This will help Penney focus on establishing a clear path with respect to well-performing brands and stores to normal gross margin levels. Looking forward, Penney is focusing on a mix of private, exclusive, and national brand merchandise that better resonate with its customers and result in fewer markdowns at the end of the selling season.

Penney has also fixed jcp.com by improving merchandise assortments, restoring inventory levels, and enhancing the online experience. It has realigned merchandising and marketing teams for jcp.com to support its omni-channel approach to the business. This is certainly a good move adopted by the company, as the changing interest of customers toward digitalization will enhance long-term growth. Penney believes that its gross margin will improve in the current quarter, as these initiatives are already producing good results.

Expanding the base

Penney is also trying to resurrect its key private brands, such as St. John's Bay, A.N.A., Ambrielle, and Xersion. These brands have seen significant improvement in sales in the festive season, thus, the company has a concrete plan to invest in these brands.

With respect to national brands, such as Levi's, Nike (NYSE:NKE), Carter's (NYSE:CRI), Haggar and Dockers, Alfred Dunner, and Van Heusen, Penney was encouraged to see improved sales in the fourth quarter of fiscal 2013. The increase in sales in these brands resulted from the new approach the company adopted in assortments and the appealing shopping environment around these brands. Penney, in the current quarter, is planning to provide a new look to its stores. This new look includes extensive remerchandising.

Penney is also focused on capitalizing on its successful partnership with Sephora. So, it is opening approximately 46 new Sephora stores inside JC Penney stores by the end of the year. This will increase the total count of Sephora stores to 492.

Penney is also planning to launch a new brand in men's and women's apparel this spring, as well as in home collections. In addition, the company is increasing its effort to localize assortments to meet style, size, and climate differences in various parts of the country.

Conclusion

It seems like Penney is successfully turning around its business. The company is focused on key initiatives to improve its gross margin and net sales, and these should lead to further gains in the future. Hence, investors should definitely take a close look at J.C. Penney's turnaround, as it looks like a solid turnaround candidate.

Source: J.C. Penney: Time To Buy The Spectacular Turnaround