J. C. Penney (JCP) Marvin R. Ellison on Q1 2016 Results - Earnings Call Transcript

| About: J.C. Penney (JCP)

J. C. Penney Co., Inc. (NYSE:JCP)

Q1 2016 Earnings Call

May 13, 2016 8:30 am ET

Executives

Trent Kruse - Investor Relations Manager

Marvin R. Ellison - Chief Executive Officer & Director

Edward J. Record - Chief Financial Officer & Executive Vice President

Analysts

David J. Glick - The Buckingham Research Group, Inc.

Oliver Chen - Cowen & Co. LLC

Neely J. N. Tamminga - Piper Jaffray & Co (Broker)

Paul E. Trussell - Deutsche Bank Securities, Inc.

Steven A. Ruggiero - R.W. Pressprich & Co., Inc.

Jeff Van Sinderen - B. Riley & Co. LLC

Randal J. Konik - Jefferies LLC

Omar Saad - Evercore ISI

Operator

Good day, ladies and gentlemen. Welcome to the J.C. Penney Company First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call may be recorded.

I'd now like to turn the conference over to Trent Kruse. You may begin.

Trent Kruse - Investor Relations Manager

Thanks. Thanks, Nicole. I appreciate that. Good morning, everybody. As a reminder, the presentation this morning includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflects the company's current view of future events and financial performance. The words expect, plan, anticipate, believe and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties, and the company's future results of operations could differ materially from historical results or current expectations. For more details on these risks, please refer to the company's Form 10-K and other SEC filings.

Please note that no portion of this presentation may be rebroadcasted in any form without the prior written consent of JCPenney. For those listening after May 13, 2016, please note that this presentation will not be updated and it is possible that the information discussed will no longer be current. Also, supplemental reference slides are available on our Investor Relations website. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call.

Joining us on today's call are Marvin Ellison, CEO of JCPenney, and Ed Record, our CFO. Following our prepared remarks, we look forward to taking your questions.

With that, I will now turn the call over to our CEO, Marvin Ellison.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you, Trent, and good morning, everyone. The first quarter was clearly challenging from a top line perspective, and we're disappointed in our results relative to our own expectations. As you've heard throughout the week from other retailers, top line sales were negatively impacted by many factors outside of our control. Having said that, at JCPenney have challenged our leadership team to focus on controlling what we control. Therefore, when I look back at the first quarter, and compare JCPenney's results to our competitive space, I feel confident that we're still winning in the marketplace.

I'm also pleased that the team did an excellent job of appropriately managing our variable expenses, and effectively adjusting inventory, given the trends we're seeing on the top line. This quarter only furthers our confidence that even in a difficult retail environment, where top line growth was lighter than expected, we will still achieve our EBITDA expectations for 2016, and in the future. This is evidenced by over 63% increase in EBITDA during the first quarter.

Now, while our comp sales were slightly down for the quarter, we delivered a two-year stack performance of 3%. Now, as I look back at the monthly comps for the quarter, we delivered positive comps in the month of February. We experienced negative comps in March and in early April and experienced positive comps the last two weeks of April, heading into the Mother's Day selling season.

These recent trends provide confidence in our ability to grow top line and improve our EBITDA for the remainder of the year, especially as we began to reap benefits of the new initiatives, which I'll discuss later during the call. I'd like to personally thank over the 100,000 associates for their continued dedication to driving great customer service, while maintaining fiscal discipline.

Although our sales environment in Q1 was challenging, there were areas of strength in our business during the quarter. First, we continue to see strong performance in our existing Sephora inside JCPenney shops. We're also very pleased with the performance of our 28 new locations that opened at the end of April, bringing our total number of Sephora locations to 546.

The first few weeks of the selling season in these 28 new locations have exceeded our expectations. In fact, this wave of openings is delivering our best-ever new opening performance from an average sales-per-location perspective. This is incredibly encouraging as we're placing Sephora shops in the smaller more rural locations than ever before, but the power of this great partnership is clearly resonating with our customers in all locations. We have another 30 openings scheduled for mid-June, and we have two openings planned for later in 2016.

We'll continue to gain market share by organically growing sales in existing stores, by adding new locations, and by delivering new brands in our Sephora shops. In fact, this quarter we launched Origins, L'Occitane, plus expanded Kate Somerville, Marc Jacobs, Fresh, and Bumble and bumble. And in the fall, we'll be adding pharmacy and other great brands to this compelling beauty assortment.

Second, our Footwear and Handbag business delivered strong comp sales performance during the quarter. Not only is our expansion of women's shoes and a relocation of men's shoes continuing to reap benefits, we also continue to see a strong response from the relaunch of our Liz Claiborne assortment of handbag.

Third, our online business continue to generate strong results. On a year-over-year basis, for the first quarter, our online SKU count increased over 50%, and our online supplier base was up nearly 20%. In addition, our mobile traffic continues to increase dramatically, but even more important our conversion on mobile improved nearly 50% in the quarter.

And fourth, we're excited about the sales potential of our Center Core initiative, and their benefits for the second quarter, and the second half of 2016. We've rolled out our Center Core concept in approximately 125 stores as of the end of the first quarter with new locations coming online each week. We're very pleased with our sales performance of our new Center Core stores, and remain excited to roll this new format out to over one-third of our stores by the end of the second quarter.

Now, let me take a moment to discuss the evolution of our merchandising strategy. At JCPenney, we know we must continue to pivot our merchandise assortment toward less weather-sensitive categories, while providing our customers with more reason to shop in our stores.

And candidly, our over-reliance on apparel hurt us in times during the first quarter, when weather patterns were not conducive to apparel sales. And the consumer was simply spending their hard-earned dollars on experiences, entertainment and to beautify their home. While apparel will always be important to JCPenney, we've conducted a detailed review of our customer current and future shopping patterns, and we'll start to strategically shift our merchandising mix to sell more products and services that correlate to where customers are spending the greater percent of their dollars.

John Tighe, our Chief Merchant, has taken the lead in this effort, and he and his merchant team are in the process of exploring category roles and allowing the data to guide our decisions on which categories will continue to grow, which categories we will add, and which categories will begin to minimize in our assortment, and we'll keep you updated.

And we're also focused on winning market share, but we will intensify our focus and commitment to reducing expense and being a more operationally disciplined company. For the second quarter and for the remainder of 2016, we will focus on being an aggressive expense reduction company, and we will focus on key initiatives to make that a reality. We owe it to our shareholders to be a more fiscally responsible company, and we will not apologize for our relentless efforts to reduce costs while protecting the top line.

As a team, we're committed to take additional steps to right-size our SG&A, to simplify and improve our store environment, to modernize our marketing, to take costs out of our supply chain operations while scrutinizing every single dollar of inventory we had. We remain committed to growing top line, while aggressively reducing our controllable expenses. We look forward to sharing more details on our plans in the months to come.

And with that, I hand the call over to Ed.

Edward J. Record - Chief Financial Officer & Executive Vice President

Thank you, Marvin, and good morning, everyone. As Marvin stated, we are disappointed in our sales results relative to our expectations heading into the quarter. However, we took actions to effectively manage expenses and inventory, and in turn delivered a $68 million increase in EBITDA to $176 million. As we've previously stated, we have multiple pathways to achieve our profitability target. This quarter clearly demonstrates our ability to drive EBITDA growth even in a tepid retail environment.

With that, I will now take you through the company's first quarter financial results. Comparable store sales declined 0.4% for the quarter. This was clearly a challenging quarter for retail driven by unseasonable weather and a change in consumer spending patterns. We experienced a strong start to the quarter in February followed by a significant slowdown in March and early April.

Having said that, sales improved during the last two weeks of April. Our strongest performing division in the quarter were Men's, Sephora and Footwear and Handbags. Geographically, the Northeast and Ohio Valley regions were our best-performing regions. Our Ohio Valley region is comprised of Western New York through Indiana. For the quarter, conversion in units per transaction were up versus last year, while transactions in average unit retail were down.

As we look ahead, we are excited about the impact or initiatives we have on driving sales. Our Sephora rollout, Center Core refresh, rebranded salon, expanded window offering, and the rollout of appliances will drive traffic and share of wallet. We expect these initiatives to have a positive impact in the second quarter, but a more meaningful impact in the back half of the year. In addition, these initiatives will allow us to become less weather-sensitive.

Now, let me turn to gross margin. For the first quarter, gross margin was 36.2% of sales and was impacted by markdowns associated with the unseasonable weather. Heading into the quarter, we expected a cooler February to help clear through our remaining fall merchandise. However, temperatures in February were warmer than expected, necessitating additional markdowns in March and early April in order to liquidate these goods.

As we look forward, we know we have continued opportunities for gross margin expansion, driven by increased private brand penetration and margin, improved clearance profitability, reduced shortage, the impact of our new pricing analytics team and supply chain efficiencies. As we recently announced, we are expanding appliances to over 500 locations.

On a square-foot basis, appliances drive substantially higher sales and gross margin dollars relative to the rest of our Home department. However, as we have previously stated, appliances will have a negative impact on our gross margin rate. Because of this rollout and the growth of our online business, we are lowering our gross margin guidance for the full year to a 10-basis-point to 30-basis-point improvement.

Now, turning to expenses, given the trend we experienced on the top line, the teams did an excellent job of appropriately managing our variable expenses. As a result, for the first quarter, SG&A decreased $93 million to $872 million and leveraged by 280 basis points. We saw savings in all of the major SG&A categories of stores, marketing, which was driven predominantly by our decision to no longer sponsor the Academy Awards, IT, and corporate overhead.

In addition, we saw improvement in our private label credit card income. Corporate overhead leveraged the most and benefit from the actions we took last October to continue to right-size the corporate office. As we look ahead, we expect continued SG&A dollar savings for the remainder of the year, but not to the magnitude we experienced in the first quarter.

Our focus on finding efficiencies and reducing expenses across all aspects of the business remains as strong as ever. We remain committed to permanently reducing costs by running a leaner and more efficient organization. And we continue to work to ensure our reductions are not negatively impacting our customers' in-store or online experiences.

Now let's talk about profitability. EBITDA increased $68 million to $176 million, a 63% improvement from the same period last year. Adjusted EBITDA improved 80% to $153 million, also a $68 million improvement.

We are pleased with the progress we have made in our EBITDA this quarter given the challenging environment. With the continued opportunities we have to improve our operational performance, we remain confident in our ability to deliver EBITDA of $1 billion this year. Our first quarter earnings per share improved 55% to a loss of $0.22 versus a loss of $0.49 in the same quarter last year.

Moving on to our balance sheet and capital structure, we are very pleased with the credit rating agency upgrades we received from Moody's and S&P during the quarter, which demonstrates that these agencies recognize our improving balance sheet and financial condition. We ended the first quarter with liquidity of $2.3 billion, up approximately $80 million over last year's first quarter. Following last year's paydown of more than $500 million of debt, we anticipate a further reduction of $400 million to $500 million in 2016. Even as this deleveraging continues, we expect liquidity at year end to exceed last year's liquidity of $2.5 billion.

Having said that, let me provide you with an update on our debt reduction initiatives. During the quarter, we purchased and retired $60 million of our outstanding debt. In addition, we plan to use free cash flow to retire the $78 million in notes maturing this August. Through a combination of deleveraging and refinancing, we will continue to proactively manage our near-term debt maturities while also actively monitoring markets to identify further opportunities. This includes refinancing and extending the maturities of our $2.2 billion term loan and monetization of our home office building as well as select real estate properties. Of note, we're providing information to over 80 prospective buyers demonstrating the significant interest we're receiving on the home office sale/leaseback.

Now, moving on to cash, cash and cash equivalents at the end of the first quarter were $415 million, $630 million below last year's first quarter. As I mentioned earlier, in the fourth quarter last year, we utilized $500 million in cash on hand to retire the outstanding term loan principal previously issued under our ABL facility.

Inventory was $2.925 billion, up 4.1% over the same period last year. On a two-year basis, inventory is up 3.2%, in line with our two-year comp stack of 3%. We continue to make strategic investments in inventory to drive the top line, including expanding our online SKU counts, which were up over 50% year over year in the first quarter, and improving our in-stock position both in-store and online.

Our inventory build is heavily weighted towards our key growth initiatives including Center Core, beauty, athletic, footwear, and handbags, among other categories. We know these investments will help drive our performance throughout the remainder of the year.

Merchandise accounts payable was $995 million, down $68 million over the same period last year, primarily due to a change in timing due to the receipts associated with last year's port delays.

Now let me walk you through our updated full-year guidance. Comparable store sales are expected to increase 3% to 4%. Gross margin is now expected to increase 10 to 30 basis points versus last year. SG&A dollars are expected to decrease versus last year. EBITDA is expected to be $1 billion. Adjusted earnings per share is expected to be positive, and free cash flow is expected to improve versus last year.

In closing, although we faced pressure on the top line this quarter given the challenging environment, we were still able to deliver our bottom line results. We know we have multiple pathways to achieving our EBITDA goal, and we remain focused on delivering it. And let me add that while we feel very good about the initiatives that we will roll out in the remainder of the year, we believe we can achieve our EBITDA target of $1 billion with a comparable store sales increase of 1.5% for the full year.

Understanding that our customers' discretionary spending patterns will likely continue in the near term, we are prudently managing our business. Having said that, the initiatives we have in place today are concentrated on where our customers are spending their dollars and will help position us to succeed in the challenging environment.

With that, I'll turn the call back over to Marvin.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you, Ed, and I'd now like to take an opportunity to provide an update on our strategic framework for 2016.

As a reminder, at JCPenney we're focused on three strategic priorities. The first is private brands. We will leverage our tremendous sourcing in private brands infrastructure to become the most efficient retailer at producing a portfolio of private brands with style, quality, and value. We have sourcing offices around the world and over 200 in-house designers. We possess a unique ability to grow our private brands penetration and increase profits because of our lack of dependency on third parties and middlemen.

For the first quarter, private brands like Arizona, St. John's Bay, Liz Claiborne, Xersion, Stafford, and JCP Home played a key role in our ability to deliver great value for our customers. And as we previously announced, we're very pleased with the expansion of our Collection by Michael Strahan in nearly 500 doors by this Father's Day. In addition, based on the strength of our relationship with Michael, we're launching an exclusive active lifestyle brand called MSX by Michael Strahan, which is being developed by our best-in-class sourcing and design team. We will launch these goods in nearly 500 stores just prior to Father's Day.

We also recently began rolling out a new in-store plus-size concept called Boutique in nearly 200 stores. This will be a one-stop shopping destination for plus-size fashion, which will include casual sportswear, denim, and active wear. Additionally, our merchant and design teams have conceived and developed our first plus-size private brand for millennial women called Boutique+.

We're excited about a new collaboration with Project Runway winner Ashley Nell Tipton, who will serve as a brand ambassador and will also design two upcoming capsule collections for our Boutique assortment. Plus-size apparel represents a $17 billion industry, and we will be a destination for millions of fashion-conscious plus-size women who are not finding what they need in terms of style, quality, and value.

Second, we're committed to becoming a world-class omnichannel retailer. While there are opportunities to improve our e-commerce capabilities, I believe we have the talent and the resources to catch up quickly. Our EVP of Omnichannel, Mike Amend, and his team have done an outstanding job of quickly closing a technology gap with our competition. This was evident in the first quarter, as we delivered another significant increase in our digital business. In the first quarter, we continue to roll out buy online, pickup in-store same-day, and this capability is now available in more than 20% of our stores.

And in the first quarter, our store attach rate on BOPUS was nearly 40%, which means there's 40% of the customers who visit our store to pick up a BOPUS order also purchase additional items. We're pleased with the early results and have plans to roll out BOPUS chain-wide prior to the back-to-school selling season.

And our final strategic priority is increasing revenue per customer. As I've said many times, we have approximately the same number of active customers today as we did in 2011. However, there's an opportunity to increase their frequency and the amount they spend on every transaction. And more than ever, customers are spending their money to update and beautify their homes, and we believe JCPenney is in a unique position to offer a compelling assortment within major appliances, window treatments, furniture, and flooring. And to address these opportunities, let me give you an update on our new Home initiatives that we announced earlier this week.

First, we are very excited about the expansion of our major appliance initiatives to over 500 stores this year. As you know, we've been running a pilot of major appliances in 22 locations since the beginning of February, and we've been very pleased with the results. We will be live on jcpenney.com nationwide next week, with over 1,200 items available to purchase from our partners from Samsung, LG, and GE.

The online team has developed a best-in-class online experience that will provide a simple process for customers to purchase an appliance, schedule a delivery, install the new unit and haul away the old appliance in one seamless process. We're also very excited about adding this business to our omnichannel portfolio. We have a in-store nationwide rollout beginning in July with all appliance departments slated to open later this fall. This will put us at over 500 stores selling major appliances.

Doing the pilot is not only where our sales and customer service scores phenomenal, we learned a lot. So let me quickly share some of the key findings from our pilots. First, over one-third of our appliance customers were new customers to JCPenney. Approximately 70% of our appliance customers were female. The sales productivity was 10 times higher than the product the new appliance set replaced. Over 70% of the appliance purchases were on the JCPenney credit card, and 30% of those were new credit customers.

The average transaction was over $1,200, and this business added low-single-digit comp sales lift to the entire store in the pilot locations. Obviously, we're very excited about the future of this category, and we're even more excited about the new customers that they bring to JCPenney. We'll keep you posted on the rollout.

Second, we're excited about the expansion of our window treatment offering. This is a lucrative category that represents a $200 million sales opportunity. The plan is to increase and enhance the window coverings presentation by an average of 25% in approximately 500 stores by early fall.

JCPenney had a historically dominant position in the window business, covering one-third of the window in America as recently as 2006. JCPenney's unique product proposition includes ready-made curtains, blinds and shades, wires and hardware, as well as custom Home products.

As we reset the floor in our stores for appliances, we'll take this opportunity to restore the original treatment square footage in our stores, giving us the flexibility to focus on trending hard window categories such as ready-made blinds and shades, as well as larger selections of curtains, drapes and valances.

And third, we just recently announced our partnership with Ashley's Furniture, and we're going to test 21 of their signature collections in select stores by Memorial Day weekend. Ashley's is the largest furniture supplier in the U.S., and most recognized brand. This new assortment offers a better value to our customer with a very relevant set of trends and designs.

Ashley's logistics infrastructure is highly efficient with five warehouses nationally and the largest suite of products in the industry allowing shorter customer lead times and flexibility on inventory ownership. Product will be directly shipped to our customers and JCPenney will own the floor samples, but will carry no additional inventory.

Ashley's core customers identified as family and value-oriented and want products to make life easier, and these attributes align perfectly with our key customer demographic of the modern American mall. In addition, approximately 1,500 SKUs of Ashley Furniture will be available on jcp.com in time for Memorial Day weekend growing to over 4,000 SKUs later this summer.

And lastly, we're excited about our new partnership with Empire Today flooring. Beginning in early July, we'll start testing this in-store concept in two markets within Tampa and the Washington D.C. Metropolitan areas. This is a unique and exciting opportunity for both companies.

Empire Today inside JCPenney will operate independently, and will be responsible for staffing, the environment, marketing and customer service. They will occupy between 750 square feet to 1,000 square feet of location in a Home department, and they will display samples of hardwood, tile, laminate, vinyl and carpet competitively priced to fit our customer demographic.

We believe this new category will be significantly accretive for the current profit dollars per square foot we currently generate in this unproductive space in our Home department. And our data tells us that customers tends to purchase window treatments and floorings in sequential transactions. Therefore, our plan is to display the Empire Today flooring adjacent to our updated window presentation.

We're very excited about the renewed focus on Home and believe that our strategic focus on these initiatives would drive increased sales in the second half of the year while creating differentiation between JCPenney and traditional mid-tier department stores. We will also continue to update you in our strategic framework and key initiatives of private brands, omnichannel and increasing revenue per customer on future calls.

We continue to make progress in our mission to reemerge as a world-class retailer and our associates are highly committed to this effort. Our ability to improve profitability in a difficult sales quarter only intensifies my excitement in the future of JCPenney. I believe we have the right leadership team, the correct strategic focus to deliver JCPenney back to profitable earnings this year, and achieve our goal of $1.2 billion in EBITDA by 2017.

And with that, Nicole, we'll open the line for questions.

Question-and-Answer Session

Operator

Thank you. Our first question comes from the line of David Glick of Buckingham Research. Your line is now open.

David J. Glick - The Buckingham Research Group, Inc.

Thank you. Good morning. Marvin, just curious, sort of the internal debate you guys had on maintaining that 3% to 4% comp guidance, obviously, tough in the first quarter. How are you guys going to manage inventories along the way? Obviously, you had said 1.5% comp to hit the $1 billion. But if you're caught with too much inventory, too aggressive sales plan, that could put that in jeopardy. If you can just kind of walk us through that decision process, the checks and balances you have in place, and how we should expect this improvement over the course of the year? Thanks.

Marvin R. Ellison - Chief Executive Officer & Director

Thanks. It's very, very basic approach. I mean, we're taking a hard look at the trend. Obviously, as we mentioned, the first part of April was very challenging, but we had positive comps towards the end of the month, and we had a positive selling environment for that whole Mother's Day selling period. So we left the month of April and entered (27:35) the month of May with some confidence. So, obviously, if our current trend was headed in the wrong direction, we will update the guidance. So we have confidence in the trend.

Also, as I mentioned and Ed mentioned, these initiatives in the second half for the year are very significant. These initiatives are not something that we're hoping that will work, but we've created very disciplined test and learn environment.

And the reason I felt it was prudent to go through the data on the appliance pilot was because, I wanted to articulate while we are aggressively rolling it out to 500 stores. So we think the combination of recent trend, we think the combination of key initiatives in appliances, Center Core, window expansion, the benefits from our shoe expansion and some of the categories that remain to be working well like the new Sephora, et cetera, gives us confidence that we can come in at that guidance.

Now having said that, we have a very disciplined process on managing inventory. And on a weekly basis, we are looking at sales trend versus receipts, and John Tighe and our Planning and Allocation team have done an incredibly good job of working with the merchants, making sure that we have our kind of finger on the pulse. And we know what we can cancel, we know what we can chase, and we're not going to get in trouble with inventory. Much too important for us to make sure that we manage our cash position well, and that we don't get over our SKU. So our holding the sales is based on those things and then we're very confident that we'll be able to manage the business as well as manage the inventory.

David J. Glick - The Buckingham Research Group, Inc.

Thank you, one quick follow-up on marketing. You said you discontinued the Academy Awards advertising campaign. Just wondered, what, if any, lessons you took from Q1? Obviously, advertising was down, traffic sounds like it was down. Are there any learnings from the first quarter that you've used to course correct for the second quarter back-to-school and holiday? Do you feel like you need to step up the level of marketing or any mixed lessons? Thank you.

Marvin R. Ellison - Chief Executive Officer & Director

Well, just a couple of thoughts. The decision not to sponsor Academy Awards represent roughly 75% of our savings in marketing for the quarter. So that was a big contributor to the SG&A savings and marketing. For the quarter, our impressions are over 3%. We received incredibly positive feedback on our new branding campaign. We'll always tweak our marketing strategy, but we have no plans to make any major overhauls, and what we're going to do in the second quarter. We feel very comfortable with our strategy, but as always we'll make adjustments along the way.

David J. Glick - The Buckingham Research Group, Inc.

Okay. Thank you very much. Good luck.

Operator

Thank you. And our next question comes from Oliver Chen of Cowen & Company. Your line is now open.

Oliver Chen - Cowen & Co. LLC

Thanks a lot. Marvin, a lot of your comments were really interesting about the transformation of the shopper and the transformation of the store towards products and services. In your research, are there any ages or demographics where this is more relevant? And what's your hypothesis about the magnitude, and how the store may need to shift? And how will you leverage your existing core competencies just to navigate that change as you rethink how the department store should be modernized?

And Marvin, was there anything, as you look back past in this quarter, it really looks like you controlled everything you could. But were there any factors in which, if you had to do-over, you would have done a little bit differently in this tough environment?

Marvin R. Ellison - Chief Executive Officer & Director

Well, Oliver, the one great thing about retail is, every day you can give yourself a score card. And we graded ourselves pretty harshly in the first quarter because we believe that we actually could have delivered better results, but the market was incredibly challenging.

As we listened to our peers in the competitive space, we actually feel a little better that we really actually outperformed based on the headwinds that we were up against. So I would say, there are always things that we look back on that we could have done differently as it relates to timing of promotions, as it relates to the efficiency of our execution. But overall, I'm incredibly pleased with the hard work of the team in order to deliver the profit performance that we were able to present in the toughest and very difficult headwinds.

As it relates to the customer and the shifts, we've spent a lot of time looking at data. And I think one of the great lessons from the challenges that this company faced in the past is that, the leadership team did not embrace data. It didn't really leverage data as a way of helping to develop strategy.

And what the data tells us about customers is that, we have really two types of customer, we have a current customer and emerging customer. Now, emerging customer is in her early-30s, she's female, she's multicultural, and she has kids. And so when we look at that customer, and we look at our current customer who's a little bit more mature, she's also female, but her kids out of the home, those customers have different ways they consume media and they have different desires on what they shop and how they shop.

And so what we've tried to do, and I think we've done it successfully is make sure that we are very focused on digital marketing and modernizing our one-to-one marketing to really address that millennial emerging customer, while understanding that traditional media still matters to the customer, that's our current customer. And when we look at our categories, and we look at what customers are spending, you've heard the data all week, it's entertainment, it's experiences, it's home beautification, and apparel was down because of the share of wallet with other places.

And so what we're trying to do is just be very transparent about how we view the retail business and that is, we have areas that we know we can improve to get a larger share of our customer's wallet and that ties directly to appliances, it ties directly to our expansion in windows area, that ties directly to looking at Ashley's and Empire for pilots.

So we're making those adjustments, and also I'll close with the value of experiences, we think our Sephora inside JCPenney is a huge experience, experience you can't get online. I mean, we're going to be close to 600 stores by the end of the year, and we're going to continue to open new locations next year. We think our salon environment is an experience you can't get online. Very important to our customer and something that when we do it well creates loyalty.

We think special sizes is a category to our customers who said to us that they don't like buying special sizes online because it's too hard to make sure that they get the right fit and style. So it's no accident that we launched our first plus-size private brand for women and we're rolling out our Boutique in 200 locations. So we're listening, we're addressing those customer needs, and we think it's going to allow us to perform better in the back half and give us a strong future in serving our customers better.

Oliver Chen - Cowen & Co. LLC

Thank you, just to follow-up, a final one. Do you really feel like you can make your store less weather sensitive? Weather, for better or worse, is a large ongoing topic. And it's just interesting you brought that up in terms of really trying to combat that factor, which plagues the volatility of what we've been seeing. So I'm just curious. When will that happen and what are the key factors we should focus on as analysts in terms of understanding the road to becoming less weather-sensitive at the department store?

Marvin R. Ellison - Chief Executive Officer & Director

Oliver, here's what I'll say to you. I spent 12 years of my life in a different retail business that had strong correlations to weather. And spending a lot of time on that and a lot of time on it here at JCPenney, we believe that one category that will help us to minimize our weather sensitivity is appliances. It didn't matter if it's snowing outside or the sun's shining, you're going to need a refrigerator, a washer and dryer, and you're going to need a stove.

And so the predominant percent of our customers are homeowners. They said to us that they would buy appliances from us if we sold them. Our prior results proved that to be accurate. And we think appliances is one of those categories that we can have a promotional cadence around it that can help us to respond in a soft sales environment if we need to. So that's one example of what we believe will be a weatherproof category for the future of JCPenney.

Operator

Thank you. And our next question comes from the line of Neely Tamminga of Piper Jaffray. Your line is now open.

Neely J. N. Tamminga - Piper Jaffray & Co (Broker)

Great. Marvin, I wanted to dig a little bit more into the Home initiatives here. You said appliances, Ashley, Empire, all great announcements. Could you just remind us? Are these capital-light, capital-heavy, and then maybe some of the actual technical, financial arrangements, like will the sales of Empire be floated into comps or are they netted out in some other line item? I'm just trying to better understand the financial implication in the P&L as that rolls out.

And then just a quick follow-up on the apparel side. Within apparel, did you see any differences? We're just curious because we're seeing some trends there. Did you see any differences between, let's say, women apparel versus teen like are moms basically pulling back on themselves but still spending on kids? We're trying to figure that out. Any context you could give around Mother's Day weekend would be helpful. Thank you.

Marvin R. Ellison - Chief Executive Officer & Director

What I would say on the apparel side in the quarter, in women's apparel, we were really light across the board. The only really bright spot was active wear was significantly up. And we're pleased with that and we're very pleased with our private brand Xersion as well as our great partnership with Nike has really helped to drive that.

As it relates to Home, all of our initiatives are in our 2016 capital plan. We strategically allocated capital in case the pilot results were good. And so I wouldn't call it capital-light or capital-heavy, but I would say the capital is appropriate. But most important, we're not holding inventory. So it's a low-risk strategic investment for us. We're going to roll out appliances, and the average store will have between 120 to 230 actual appliances in the store. And we'll have over 1,200 online starting next week, but we'll own no inventory in any distribution center.

It's the same with Ashley's. We're going to own only what's in the store. We're going to have the product pulled from their distribution centers, and they have a best-in-class logistics infrastructure. And Empire is the same way, sample product, no inventory.

So on the financial arrangements, for appliances it's pretty straightforward. We sell the product. We make the revenue. For the other categories of furniture and flooring, it's a pilot. So we're still working through what makes the most sense for us and our supplier partners, so more to come on that. And windows, obviously, is a category that we've had great history and we just want to regain it and we think we can.

Neely J. N. Tamminga - Piper Jaffray & Co (Broker)

Anything on Mother's Day you could add, weekend?

Marvin R. Ellison - Chief Executive Officer & Director

We were pleased with the Mother's Day selling season. And that's something that actually gave us confidence, at least coming out of the first quarter, to hold our sales guidance for the year. We continue to work each day, each week. But for that entire selling season, Mother's Day, we feel good about the progress we made.

Neely J. N. Tamminga - Piper Jaffray & Co (Broker)

Thank you, best wishes out there.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you.

Operator

Thank you. And our next question comes from the line of Paul Trussell at Deutsche Bank. Your line is now open.

Paul E. Trussell - Deutsche Bank Securities, Inc.

Good morning, gentlemen. I just want to continue the conversation on top line guidance. Certainly, the positive comps heading into Mother's Day is encouraging, frankly, one of the better data points we've had all week, but we also note that JCPenney is a destination during those key shopping events. And so just overall I'm just wondering. Marvin, is your view in maintaining the comp guidance, is your view that the environment for apparel spending has not overall been altered or changed, but that perhaps mid-March to early April was weather-induced, or is something else going on? I'm just still wondering about the conviction in maintaining the overall 3% to 4% comp guidance, or maybe even add in some color to the extent that the appliance rollout is additive versus where your guidance started the year.

Marvin R. Ellison - Chief Executive Officer & Director

Paul, obviously you can imagine we spent a lot of time on this, and it really came down to the simple fact that we didn't believe that one quarter was significant enough to bring the entire year down, especially based on the fact that we're opening 60 Sephoras. We were rolling out Center Core to a third of our stores, and the early rollouts have been successful, in addition to accelerating the rollout of appliances to 500 stores. So as we thought about the new initiatives, we really felt good about the second half of the year because we knew that we'd have these initiatives kicking in.

I failed to mention the windows in 500 stores, which in our pilot location has been very successful. So we had some very tangible things that we felt great about, that we believe would give us incremental sales growth in the back half of the year. So that was part of the equation. The other part was when we look at apparel, and just look at what happened in the first quarter, we do believe a lot of it was driven by weather, and we think some was driven by just a shift in consumer sentiment. We don't believe that's a permanent shift, but we believe that it's something that we'll be able to recover from to get to that 3% to 4%.

We also understand that we're going to be in a much better position heading to back-to-school which is a critical season for us and other retailers. And we just felt, it would not have been prudent to make assumption on sales coming out for the entire year based on one quarter.

Having said that, we have enormous discipline around managing inventory, and we're going to look at it on a daily-weekly basis. And if we see our trend not performing to the level that it should, we'll make the necessary course corrections. So we're not swinging for the fences there. We understand what we have to do. We understand what our forecasts are, and our receipts will reflect that, and we'll make the adjustments along the way, but it's really based on the confidence of our initiatives, it's based on the current trend and how the trend improved coming out of early April, and we're hoping that trend continues.

Paul E. Trussell - Deutsche Bank Securities, Inc.

Great, thanks for that. As we turn to maybe gross margins, Marvin or Ed, if you can just help us with some of the factors that led to the modest decline here in 1Q, and how we should be thinking about private brand penetration, clearance levels and margins, supply chain shrink, if you can just touch on some of those factors for gross margins both in the first quarter, and going forward?

Edward J. Record - Chief Financial Officer & Executive Vice President

Sure, Paul. This is, Ed, I'll take that. I think first quarter was predominantly impacted by our over-penetration of clearance. Our margin on clearance was actually substantially better than it was last year. We just sold a lot more clearance. We came into the year with a little more fall than we'd probably wanted, but we expected it to be a cool February, expected to be able to sell that, and frankly, sell it before it got to clearance. And we did not sell it February, the customer wanted spring in February.

And as we got into March and April, the weather got cooler than seasonal and the customer didn't want spring anymore or they didn't want spring and they weren't going to buy a coat in March or April. So we ended up having to mark that stuff down. And now clearance was up for the quarter, but the over-penetration of clearances would predominantly hit our margin.

As we move forward, we feel really good about our initiatives to drive additional margin. Obviously, we feel good about the content of the inventory go-forward. I would tell you that, almost all of our increase in inventory is in basic goods. So we feel good that we don't have an overhang of markdowns going into Q2.

And then when you look at the efficiencies we have as we continue to look at our supply chain initiatives, the pricing analytics team we're just launching, we feel good about the margin opportunities we have. And again, the predominant reason for lowering the margin guidance is around appliances rolling out, and the impact it's going to have particularly in the third quarter and fourth quarter on our margins.

Paul E. Trussell - Deutsche Bank Securities, Inc.

Thank you.

Operator

Thank you. Our next question comes from the line of Steven Ruggiero of R.W. Research (sic) [Pressprich] (45:58). Your line is now open.

Steven A. Ruggiero - R.W. Pressprich & Co., Inc.

Marvin, can you just discuss how you are taking dollars out of the domestic transportation and logistics infrastructure, given you're historically scaled to a larger sales base?

Marvin R. Ellison - Chief Executive Officer & Director

Well, I think, as a reminder, we have a new supply chain leader that we brought in, in 2015. And really what's happening is more network optimization and just being more efficient on cube utilization. There are some very specific initiatives that Mike Robbins, our Head of Supply Chain and team put in place that that's really driving costs down, that we think will be significant for the balance of the year.

Just one real example, we were one of the only retailers in the U.S. that were shipping garments, hanging in this physical truck, and what I learned years ago running a supply chain is that, the most expensive thing to ship is air. And we were shipping a lot of air.

And so, from that, Mike worked with Joe McFarland and the store operations team and the merchants to really come up with a more efficient way to cube out our truck to take those transportation costs down and improve the fill rate and the quantity of goods that's delivered to the store.

We've been extremely pleased with the results of that, and it's something that we'll continue to benefit on. Mike's also brought in some outside help and some technology to help us with the optimization of the network to making sure that we have the right DC locations, we're using the right over-road lanes, and that we're understanding the efficiencies of how we get product from the port.

So those are just examples, but those examples are meaningful. And for every dollar we can take out of our supply chain expense is accretive to gross margin, and that is a big deal to us. And so I look forward, hopefully, in the next call, but definitely later this year to outlining some very specific supply chain initiatives that we're pleased with, that we think we'll reap big benefits in the future.

Steven A. Ruggiero - R.W. Pressprich & Co., Inc.

Thank you for that. And just shifting gears to the Salon by InStyle, just can you give us an update on that? Where you are with the stores? And those that have experienced the changes, have you seen any meaningful differences in customer traffic?

Marvin R. Ellison - Chief Executive Officer & Director

The short answer is, we're very pleased with the change. We are seeing incremental traffic growth. We're actually seeing better revenue. And surprisingly, what we didn't anticipate is that we're seeing a higher quality of associates. It is so much easier for us to recruit high-quality stylists when an existing clientele and book of business come and work for that InStyle branded salon than a traditional JCPenney salon.

We're still learning, we're going to roll out a little less than 100 locations this year for sure. We're making tweaks throughout, and we're also excited about a new online scheduling system that we're rolling out company-wide that will modernize the way a customer can make an appointment and update that appointment. So all those things are underway, but so far we're very pleased and we think this will be a game changer for us as we figure out what the perfect model is.

Steven A. Ruggiero - R.W. Pressprich & Co., Inc.

Great. Thanks for that.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from the line of Jeff Van Sinderen of B. Riley. Your line is now open.

Jeff Van Sinderen - B. Riley & Co. LLC

Good morning. I wonder if you could just give us a little bit more color on e-comm, what you saw on the quarter, whether that accelerated or decelerated versus Q4? And then just relevant to the discussion on inventory, to clarify, on the warmer weather seasonal inventory, are you where you want to be, or because that was a slower category, do you have some, I guess, some extra there that maybe you need to take some harder markdowns on?

Marvin R. Ellison - Chief Executive Officer & Director

Okay, I'll take the e-commerce question, I'll let, Ed, take the inventory question. I mean, we're very pleased with our e-commerce growth, and as we mentioned in the call, part of that is just aggressive SKU expansion. When I arrived at JCPenney, doing the turnaround efforts, e-commerce was dramatically impacted and really we had a philosophy that e-commerce should just reflect what we had in the store, just extend its sizes and colors. And as I mentioned, we've brought Mike Amend onboard, and he's has recruited some great talent, and really inherited some talented leaders and they've really accelerated e-commerce in a big way.

We're pleased with the mobile strategy; we're going to be launching a new mobile app here in the next couple of weeks that we think will be a game-changer for us. It's in beta and it's performing exceptionally well.

We're going to be rolling out buy online, pick-up in-store same day within the next couple of months. And as I mentioned, apparel has also been exceptional. Anytime you get a 40% attach rate with customers coming in, that's exceptional. We're very pleased with the navigation. We're pleased with the fact that we've increased our suppliers by 20%, and our SKUs by 50%.

So e-commerce is really working well for us. We are still behind, and we know that. But I'll ask everyone to go online next week and look at our new appliance site. That will give you a view of the talent and the skill level of our e-commerce team, because they've built that site from scratch, and we're going to be nationwide selling appliances online starting next week. And so, I think that gives you a glimpse into our confidence in that team and how we believe that will be a continued integral part of our future.

In addition, we're very excited about creating true fulfillment locations from our stores. Today, our stores are basically in a save-the-sale mode, meaning if we're out of stock in a dot-com DC, the order reverts to a store to pick it and ship it. And we're in a process of identifying stores, and they will be the primary fulfillment location, which we think will allow us to save delivery cost, and also give us the ability to ship same day and next day in some examples. And that's how we want to leverage 1,000 stores to really be a more efficient retailer. So we're very pleased. The growth has been incredibly strong and that's maintaining it and we see it only getting better. So I'll hand it over to, Ed to answer your question regarding inventory.

Edward J. Record - Chief Financial Officer & Executive Vice President

Yeah, with regards to spring season, we feel like we're in really good shape. Our inventory growth, as I said earlier, is predominantly in basic, and in the initiatives like active, Center Core and shoes. So when you adjust for that, our spring go-forward inventory in the non-initiative areas is really flat to down. So we feel like we're in really good shape as we head into Q2.

Jeff Van Sinderen - B. Riley & Co. LLC

Okay, good. And then as a follow-up, anything else you could tell us about further expense cuts you might be able to make? Obviously, without negatively impacting the business and then any update on the debt refi? Thanks.

Marvin R. Ellison - Chief Executive Officer & Director

So on the expense cuts, so I think, it's all about being operationally disciplined. Joe McFarland came in to run store operations, and really the store team, and one of the first things he wanted to do was create efficiency in how we used our store payroll, meaning what percent of our payroll are we using for service and selling, what percent are we using to do things that don't impact the customer.

And within the first quarter, he and his team identified over 0.5 million hours that we were spending that had nothing to do with customer service, just totally inefficient. And with the implementation of improved systems and processes, we're able to reduce over 0.5 million hours in Q1 just based on efficiency, and it made no impact to the top line, it made no impact to degradating sales. It was simply back office activity that we modernized and put technology in place to supplement.

And then as Ed mentioned, we're not expecting to replicate Q1 SG&A savings throughout the year. But I think what we improved in Q1 is that, we have a lot of efficiencies remaining that we can go and we can capture, and that's just one example of an area that we think is opportunity rich. And as we look around the entire company, and we implemented technology, we know what technology will allow us to reduce the expense because we're gaining efficiency. So a lot more to come, and again, I'm not going to apologize that we're going to be relentless on taking our costs because we owe it to the shareholders. And for our revenue base, we can be a more efficient and having a lower expense base, and we can do that without putting any of our top line sales at risk. So I'll let, Ed take the second part of your question.

Edward J. Record - Chief Financial Officer & Executive Vice President

Sure. Regarding debt refi, as we've said, we've continued to keep an eye on the market. In the last, I don't know, six weeks, eight weeks, markets have continued to improve. So we feel they're pretty constructive right now, and continue to take a really hard look at that. And hopefully, we'll have more to say about that at the end of Q2.

Jeff Van Sinderen - B. Riley & Co. LLC

Okay, thanks and best of luck.

Edward J. Record - Chief Financial Officer & Executive Vice President

Thanks.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you.

Operator

Thank you. Our next question comes from the line of Randy Konik of Jefferies. Your line is now open.

Randal J. Konik - Jefferies LLC

Yeah. Thanks a lot. I really appreciate the obsession with the data. I guess a couple questions around that. If you think about grouping the stores around the 546 with Sephora, the 125 with the Center Core, and then the balance with, let's say, nothing, how did the UPTs look from a differential perspective across those three groups? I'm just curious. You obviously have probably seen a lift in UPT from Sephora or the Center Core. I'm just trying to get some perspective how different it really is. Thanks.

Marvin R. Ellison - Chief Executive Officer & Director

It's really a great question. I don't have the data in front of me, but I can just give you at a high level. We know for a fact that when we put a new Sephora into a store that we'll get an overall sales lift. We'll see the customer shop in more places than the Sephora location. And as I mentioned in my prepared remarks, what we're most pleased with is that early on in our Sephora relationship, we had the belief that we could not put that environment in a rural market or a smaller footprint store. And we decided to test that theory, and we've been incredibly pleased that that brand works wherever we put it. And as I mentioned, our best performance in the history of our relationship from early sales per location is occurring this year in the face of a very difficult top line environment.

And so I don't have the data in front of me, but our pilot results and our early results will tell us that the Center Core locations are working because we do a test versus control. And we know in those stores that receive that new environment, sales are up relative to their peer group. And we believe we're going to see the exact same thing happen with appliances, and we believe we're going to see the exact same thing happen with our update for windows. So no data in front of me, but anecdotally and at a high level, we know that these environment changes are making a difference.

Randal J. Konik - Jefferies LLC

Got it, that's helpful. And then as I think about Home Depot and the idea of category management or SKU proliferation based on returns in a particular category like, let's say, nails or paint or some power tools, that company from your experience had a certain number of brands or SKUs because of the way the category was. How do you think about that category, the depth of SKU or the depth of a category in the JCPenney area? What needs to be – do SKUs need to come down, do SKUs need to go up? I'm just curious on how you think about that and how you compare that experience at Home Depot in that category management philosophy and apply it to JCPenney.

Marvin R. Ellison - Chief Executive Officer & Director

I don't know that the comparison exists other than the fact that Home Depot is a world-class retailer, and we are striving every day to become a world-class retailer. But what I can say, I've been incredibly impressed with the merchant team and incredibly impressed with their depth of knowledge of our assortments and how it connects to the customer. As I mentioned, John Tighe, who has been our Chief Merchant since the fall of last year, is taking the lead and really going through our own version of category management and just asking a very simple question. What's the role and intent of every single category we have in our store? And you can't do that unless you truly understand your customer.

And so Mary Beth West, our Head of Marketing and Chief Customer Officer, and her team have done a really nice job of working with John and the merchant team to bringing clarity to who is our customer. One of the key reasons why we changed our branding platform was because we felt that our old brand platform was not addressing the true needs of our customer because we didn't know who the customer was. Now we have a very clear understanding. So John and his team are taking the necessary steps of looking at the data, looking at our existing categories, looking at consumers' current and future spending and buying patterns and asking the simple question, what do we grow, what do we add, and what do we eliminate? And so that work is underway and we're excited about the possibilities, but we're very confident that John and his team will help us to understand what works for JCPenney. So more to come, we'll keep you all updated on the progress.

Randal J. Konik - Jefferies LLC

That's helpful. And I guess my last question is – again, I guess again, I'm thinking about Home Depot versus Lowe's. And I think about Home Depot as that guy's guy choice to go to check cement floors and it's almost the preferred choice of the contractor or the pro. They did a good job of really highlighting that differential from a Lowe's, where you get more chatter about more for the mom or what have you. When you look at JCPenney and you want it to make it – continue to stand out with these, with Sephora, with the salon, with the appliances now, what do you really want – when you look across the spectrum of competition, what do you want that statement or that differential to be that your customer goes here because?

Marvin R. Ellison - Chief Executive Officer & Director

I think for us, it all starts with the experience in the store. We rolled out a new service training program, led by Joe McFarland and his team. And we retrained every single associate in the store, and that training is driven by the general manager. And we just completed that. And the good news is we've seen service scores go up on a weekly basis in the store based on the training and based on how it's resonating. So the experience in the store matters.

For us, it really comes down to a couple fundamental things. We want to be the number one choice for customers looking for style, quality, and value. And we think that we can do that by increasing our private brand penetration. We think we can do that by continuing to expand Sephora inside JCPenney, create an experience with Salon, and more importantly, allow the customer to come in and beautify her home with our new vision of our Home department. And so style, quality, and value is our goal for our customers and we want to be the preferred choice, when they want to come in to buy anything.

Randal J. Konik - Jefferies LLC

Great, that's very helpful. Thank you.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you.

Operator

Thank you. And our next question comes from the line Omar Saad of Evercore ISI. Your line is now open.

Omar Saad - Evercore ISI

Thanks for taking my question, good morning. Marvin, I wanted to dig in a little bit further on some of your comments around the private label credit card. It sounds like that's accelerating a little bit, especially with the expansion into appliances. I also think there's – correct me if I'm wrong, there's been a slight change in the loyalty reward program and how the consumer gets the rewards from that program. Maybe if you could, elaborate on that, if you're seeing any early results on that side as well. And with the acceleration of appliances, does it change your timeframe of when you think you get to a more industry average private label credit card penetration?

Marvin R. Ellison - Chief Executive Officer & Director

Great question. On credit, because the quarter was down, we still are very pleased with the progress that we're making on the number of applications, new accounts. All were up and penetration was up. So again, we're excited about that. We're also pleased with the approval rates in everything. So we're all headed in the right direction. So penetration up roughly 240 basis points; in a tough top line quarter, we're very pleased with that.

Regarding loyalty, we launched the new program in the first quarter. It's still early days, but we hope to have a more detailed view of the data. But early reads are that, it's resonating, and it is a much more receptive program for customers than the previous program. But again it's still early, and I look forward to updating you more in the future.

And regarding appliances, one of the key learnings from the appliance pilot is the number of customers that made a purchase with their JCPenney card and the number of new customers that joined us to acquire credit to make an appliance purchase. It's one of the reasons why we did accelerate it because, look, without question, our penetration still remains significantly lower than our competitors'. So we have a huge opportunity to get our penetration up.

That being said, we think appliances will play a key role in not only driving up the penetration, but also getting our average ticket up dramatically and driving gross profit dollars per square foot in an area that desperately needs it. So more to come, but we're committed to credit, and we know that credit will be a significant benefit not only from an SG&A standpoint, but from a customer loyalty and from a top line revenue.

Omar Saad - Evercore ISI

And then, Marvin, could you maybe elaborate just a little bit more on the changes in the loyalty programs from the consumers' perspective, how it's different than it was before, and then why you made those changes?

Marvin R. Ellison - Chief Executive Officer & Director

Well, I think one of the key changes is the expiration of points. I mean, in the past, our program was very confusing. We didn't leverage the data really well. Our points expired and the customers didn't really embrace it. So it was an expensive program to operate, it was a confusing program to articulate and that's a bad equation for any retail to have with the consumer base.

The other part that we changed was we wanted to gain more benefit to our credit customers. So if you're a credit customer, we want you to have greater portfolio of benefits which is also very important. And candidly, we're piloting different programs around the country just to continue to get a read on it. That's one of the reasons why I'm hesitant to get into a ton of detail because we're still trying to understand which component works and which does not work.

But overall, the biggest change is points not expiring and dramatically more benefits for our credit customers so we can incent them to use credit. But more to come, and again, we are pleased with the overall results, but we want to make sure that we design a program that will really resonate well with our consumers.

Omar Saad - Evercore ISI

Thank you. Good luck.

Marvin R. Ellison - Chief Executive Officer & Director

Okay, thank you.

Operator

Thank you. And that is all the time we have for questions. I'd now like to hand the call back over to CEO, Marvin Ellison. You may begin.

Marvin R. Ellison - Chief Executive Officer & Director

Thank you. Again, thank you for the questions. We look forward to updating you on the continued performance of our business on our next earnings call. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.

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