by Evan Clark with contributions from Alexandra Steigrad
From WWD Issue 05/17/2011
Myron E. "Mike" Ullman 3rd, J.C. Penney Co. Inc.’s chairman and chief executive officer, is standing by his goal to more than double earnings by 2014, but he plans to get there by a slightly different route.
The retailer, which drove first-quarter profits up 6.7 percent with a combination of expense cuts and a double-digit gain in apparel, is trimming its plan to open about 70 new doors in the coming years. And some of the stores that are opened will be smaller, averaging 50,000 to 60,000 square feet versus 100,000 for the current fleet of more than 1,100 doors.
“We have some smaller stores on the horizon that we’ll be opening in some urban areas,” Ullman told WWD, pointing to the recently opened Daly City, Calif., store. “It’s a function of where the customers live and what their appetite for apparel is.”
Instead of achieving the 2014 profit goal of $5 a share by store openings, the company will focus on getting more out of its current operations. That means adding businesses, such as the exclusive on Liz Claiborne, which the ceo said had brought “hundreds of thousands” of new shoppers to Penney’s.
The retailer’s shares fell $1.23, or 3.2 percent, to $37.21 as the S&P Retail Index suffered its worst day since Feb. 22, shedding 2 percent, or 10.95 points, to end Monday’s trading at 536.30. The Dow Jones Industrial Average was off 0.4 percent to 12,548.37, while the Nasdaq Composite suffered a 1.6 percent drop to 2,782.31.
Ullman and his counterparts at other broadline chains are trying to avoid the mistakes of the past, in which the various department stores all ended up with similar offerings as they chased hot trends.
“The sameness in department stores really became a disadvantage,” Ullman said. “What’s happening now is the surviving department stores are making sure to innovate.”
Penney’s, for instance, opened 292 MNG by Mango shop-in-shops and 100 Call it Spring shoe shops in the first quarter.
As exclusive businesses drive sales, the retailer is trying to make the most of those sales by streamlining operations. Penney’s said Monday it would cut $50 million in expenses this year by being more efficient in its marketing and restructuring the supply chain so the stores and Web site can pull from the same inventory. About $10 million of those savings were realized in the first quarter, helping the firm transform slow growth in total revenue into a better bottom-line performance.
First-quarter earnings rose to $64 million, or 28 cents a diluted share, from $60 million, or 25 cents, a year earlier. Sales for the three months ended April 30 inched up 0.4 percent to $3.94 billion from $3.93 billion on a 3.8 percent gain in comparable-store sales. Comps were driven by private and exclusive brands, including Liz Claiborne, Worthington and MNG by Mango. (For a comparison of comp sales for broadline retailers, see chart.)
Penney’s projected annual earnings of $2.15 to $2.25, including the impact of the recently completed $900 million share buyback program.
The outlook for the back half of the year is still murky given increasing cotton prices. Retailers in general are planning to sell fewer units at higher prices while increasing total sales. Ullman said Penney’s is holding its opening price point, but will raise prices on its better offerings.
“Right now the consumer is just trying to make it all work,” he said, citing the pressures of higher food and gasoline prices.
