Penney says turnaround takes hold, ends monthly sales reports
When Ron Johnson was CEO of J.C. Penney, he decided to forego providing Wall Street with monthly sales reports as they proved a distraction to his grand retailing experiment. When Mr. Johnson’s initiatives failed, his successor Myron "Mike" Ullman brought back monthly reports so investors could see progress was being made in turning the company around. Now, following a positive quarterly earnings report, Mr. Ullman has decided that monthly reports will not be needed.
"We stabilized our business, both financially and operationally, and restored our process disciplines, promotions, inventory levels and focus on the customer. As a result, we generated positive comparable store sales in the fourth quarter and ended the year with more than $2 billion in total available liquidity, said Mr. Ullman, in a statement. "These important accomplishments reflect the progress we have made in our turnaround, which remains on course heading into 2014."
Analysts were divided on the decision to drop the monthly reports with those against it arguing that investors benefit from having more information and not less.
Paul Swinand, an analyst with Monrningstar, told Bloomberg News, "It’s a mild positive, in that they always said they didn’t want to go back to monthly sales. Macy’s Inc., Nordstrom Inc. and Wal-Mart Stores Inc. have all dropped."
While Penney reported a same-store sales increase of two percent for its fourth quarter (holiday sales were up 3.1 percent), there are still those who question the chain’s business prospects.
An article by Mitchell Schnurman of The Dallas Morning News argues that Penney is operating with way too many stores. The chain intends to close 33 stores by May, but once that is done, he wrote, Penney will have roughly the same number of stores as it did in 2007 and sales for the company were $8 billion above current levels.
Discussion Questions
Is now the right time for J.C. Penney to discontinue monthly reports? Do you agree or disagree that the chain is seriously over-stored? Do present locations have a role to play that goes beyond profitability, e.g., as local distribution centers for online orders and pickup destinations?
Given the volatility of this stock, and the wild swings up or down at the hint of any news, now is not the right time to discontinue comp-store sales reports each month. More transparency is called for, not less. The vagueness of the December sales comments (compared to the November report) ought to be a lesson to JCP.
To the question about being overstored, the answer is, “Absolutely.” Closing about thirty low-volume locations (judging by several small-town stores being closed here in Wisconsin) barely scratches the surface. If JCPenney wants to convince investors that it’s on the right track, it will take a greater commitment to expense reductions for this downsized company, not just a push toward higher gross margins.
The stock market has proven to be unusually volatile since the Great Recession. And because holidays and other events fall on different dates each year, YOY monthly numbers can indeed fluctuate a lot.
Instead of spending hours de-seasonalizing the monthly numbers, it really does make more sense to report quarterly.
We can see from the TV ads that JCP has found a good note to sing (at least I think so). We also know the company has come back from the brink of bankruptcy, at least temporarily. Mr. Ullman really does deserve props for both those things.
Whether JCP will succeed in drawing customers back and building a new base long-term remains to be seen, but nothing in monthly numbers is going to tell us about that.
So, I think the timing is good.
As for the number of stores, the whole bloody country is over-stored. Too many Penneys, too many Sears, too many RadioShacks, you name it. The decision to close stores will be based on lease end dates, and I suspect almost all retailers in the US will slow terrestrial expansion and close down some locations in an orderly manner. No shame or blame there.
It is important to have a physical presence. I know the last time I was in J.C. Penney a few months ago, I was able to see and feel the clothes and other merchandise I purchased. The rewards of physically examining the goods is still a strong reason for J.C Penney to have a physical presence.
Now is not the time to discontinue monthly reports. To say that one quarter’s worth of decent results (off a horrific year-ago base) is sufficient evidence that the turnaround is progressing is just plain wrong. Further proof, in the form of additional positive comp sales and traffic trends (and key categories beyond SEPHORA!), is needed, and transparency is key.
Re: stores. They are overstored, and many locations are in underperforming malls.
“Over-stored” is a relative proposition in these omni-channel days. J.C. Penney was one of the first (if not the first) retailers to hit $1 billion in e-commerce sales a few years back but since then, its e-commerce mojo has slipped right alongside its struggling stores. Like Walmart, Target, Macy’s and other large-scale retailers, Penney’s big opportunity is to leverage its physical scale to drive omni-channel sales.
My recent site-to-store attempt with Penney was a disaster. My order was in the record, yet nowhere to be found in the back room. Store associates seemed overwhelmed and unprepared to facilitate site-to-store orders. If this is the current omni-channel standard at Penney, store closings may make sense. If it straightens things out, physical scale could be a killer advantage.
Monthly sales reports are for stock analysis, not customers. If it does not benefit the customer, don’t waste the time. Many firms in Europe only report sales twice a year. They think quarterly is a waste of time.
Many retailers are overstored when you consider the growth of online sales. The more important question is where the stores are located. Are they on the right site for their target customer? Number of stores by itself is not a telling number.
Who really cares if they stop the monthly reports? Will it make a difference? The stockholders know what is happening, if they are still on board.
Penney’s is another example of too many stores selling the same or nearly the same merchandise. What have they done to separate themselves from the pack in a positive way?
Speaking of over saturation as we did earlier with RadioShack’s non bombshell news, stand on any corner in any city and see if you don’t come in range of at least two drugstores. Then go to another corner less than a mile away and you will see the same two drugstores.
So I guess investors need only to take their word for how things really are. New rule!…if you can’t cook the books, simply close them for as long as you can. Well we won’t have to wait long for the market to respond to these new policies to have an effect, or will we?
Mr. Schnurman’s logic escapes me, or perhaps I should say I don’t agree with it. Sales drop by 50% so close 50% of your stores…it doesn’t work that way when sales have fallen everywhere (That having been said, the sales figure of $71/square foot that he cites suggests a lot of dead/dying limbs are left to prune.)
Back to the monthly issue, while I would always prefer more info than less, the time to drop them is when things aren’t going so badly that it looks like you’re trying to hide something. They’re there now – sort of – and who knows when/if the chance will arise again?
Short-term reporting drives short-term decision making – always problematic in the retail business which is built on sustained long term customer relationships, not monthly results. All retailers should be on quarterly reported results.
Monthly reports did not create JCP’s success. Having them or not is not the key to their success or failure.
I do feel that JCP is overstored, and that stores in second rate malls should be evaluated. Mr. Ullman has done miracles — I do not care what ANYONE says — and I do not want to hear that JCP’s average customer died 6 years ago. The actions Mike have taken have stepped the company back from the brink of the abyss. Like them or not, you cant argue with (current) success. THANK GOODNESS! An America without JCP would be sadder, even if their merchandise is indistinguishable from Macy’s and Kohl’s, but even there I think there ARE some distinguishing characteristics that JCP does utilize, perhaps not enough to differentiate itself. I wish them ongoing success. Monthly reports make no difference — anyone remotely familiar with the story over the last two years knows all too well what is going on. Macy’s dropped monthly reports also.