Home helps JCP crank out strong comps in Q1

The recent re-launch of its home store helped J.C. Penney “turn an important corner” in the first quarter, when more affordable bedding, bath and other categories reclaimed the spotlight both in stores and online, significantly contributing to the company’s strong comp and sales results.

“We feel good about our home performance. We call it a department now, Home Collections, and we've had great customer feedback,” said Mike Ullman, ceo, during the company’s earnings call Thursday afternoon. “As part of the re-launch, we re-merchandized the floor to make better use of the space and to confirm the way the customer wants to shop. We also placed a renewed focus on bedding and bath, small electrics, as well as decorative accessories. We now offer a range of home merchandise that better fits our customer's budget and lifestyle.”

This adjustment represents a shift back to the company’s earlier days under Ullman’s leadership, pre-former ceo Ron Johnson.

“We probably had about 10 million square feet of home which maybe 70% of it was out of commission for the period, second quarter last year…it represents a pretty big footprint of our store,” he explained. “But right now it's rebuilding back to the former levels in terms of its sales level. I’d say about half of our comp could be in regard in the first quarter as being less than half probably of our comp in the home category. We will still have that effect in the first portion of the second quarter.”

Since Ullman returned to the helm, JCP “has increased the footprint size of home during the major remodel a year ago, and much of our activity of the last eight or nine months has been re-assorting the merchandise in such a way that it relates better to the way customer shop. So for example, pulling together classifications, so bath and bed and various categories are usually shopped…The level of inventory we think is appropriate. There may be more space than we're used to just because of the size of the footprint. We think as the business grows we will obviously increase the inventory accordingly.”

At jcp.com, home has also contributed to this trend. As Ullman explained: “Our business with Home Online has also bounced back a significant piece of our online business. So, we feel good about the re-merchandising and I think that you will see us continue to innovate in the home area as we get through back-to-school into the holiday.”

Despite the difficult weather conditions in February and March that hindered the results of many of its key competitors, JCP managed a 6.1% net sales increase to $2.80 billion versus the year ago period’s $2.64 billion. Same store sales were similarly up, 6.2%, “and improved sequentially each month within the quarter,” the company noted.

Also, April represented the first time in more than 30 months that its store traffic was positive.

The company increased its net loss by 1.1% to $352 million from $348 million a year ago. But diluted earnings per share improved by 27.2% to ($1.15) from ($1.58).

JCP’s total brick-and-mortar merchandise sales were up 6.5%, the company added, “demonstrating the progress and success for merchandising and marketing initiatives.” And online, total sales through jcp.com “continue to show significant growth this quarter,” increasing 25.7% year-over-year under a new methodology JCP is adopting for these calculations.

The company said that, going forward, it will simplify its same store sales calculation to better reflect year-over-year comparability, excluding certain items, such as sales return estimates and liquidation sales.

That said, JCP expects the new sales reporting methodology to have a 10 to 20 basis point impact.

For the first quarter, gross margin was 33.1% of sales, compared to 30.8% in the same quarter last year, representing a 230 basis point improvement.

“While better than last year, gross margin was negatively impacted by an increase in clearance sales as a percentage of total sales in February and March, as well as negative clearance margins,” the company noted. “Gross margin improved sequentially throughout the quarter, and the clearance sales mix returned to historic levels by quarter end.”

Looking ahead, the company shared its guidance for the second quarter of 2014. It calls for: comparable store sales to increase mid-single digits; gross margin to improve sequentially versus first quarter of 2014;

For its 2014 full-year guidance, JCP expects comparable store sales to increase mid-single digits and gross margin to improve significantly versus 2013.

Source: Home & Textiles Today