JCP
#Great.
Well, I think the state of consumer really hasn't changed from last quarter.
I know we spent quite a bit of time talking about it.
We're very pleased.
We look back at the month of July, we really feel good about the trajectory of the business: every division positive comp; we had positive traffic in our stores; we had positive comps for the entire quarter in-store and online.
So for us we feel really good about the state of the consumer.
We think the onus relies on the retailer to give the customers a reason to shop.
We had our Power Penney Day event a couple weeks back, and it was significantly successful for us.
So we know when we have the right message and the right product, customers show up.
We're really pleased and excited about the initiatives for the second half.
<UNK> spoke about them; I spoke about them.
We're especially pleased with appliances.
We're in approximately 200 stores.
The pilot was very successful.
We increased sales productivity by 10 times in our pilot stores; we increased profit dollars by 8 times; and we had over a third of customers who came in to buy appliances were new to JCPenney, and 70% of the transactions were done on a JCPenney credit card.
So when we look at the home initiatives, specifically appliances, we are pleased with our early results, we're pleased with the online performance, and we think that's going to help us to drive traffic and to achieve our sales guidance for the balance of the year.
Okay, thank you.
Here is what I would say.
I think it's a very fair question.
As a reminder, last year we closed roughly 40 stores.
We're closing roughly seven stores this year.
We have a very disciplined process that we will not maintain any store or any strategic entity within our Company that doesn't provide value to the customers and really tie to our strategic future.
But as I said in my prepared comments, over 50% of our dot-com transactions somehow touch the store; and that is before BOPIS, buy-online-pick-up-in-store same day, has been fully received by our customers.
We're still early days in that initiative, but the early results are significant.
So when we look at having a true omnichannel strategy, what we understand and what I understand from my past experience ---+ and I'm very fortunate that my head of stores has lived through this whole omnichannel initiative, my head of supply chain, my head of IT, my head of e-commerce: all bring different and unique perspectives on leveraging the assets of your company to serve customers.
Any brick-and-mortar retailer that thinks that they can go head-to-head with a pure-play e-commerce company by simply doing it online I think is in for a rude awakening.
We understand that leveraging our stores allows us to have a lower delivery cost, to reduce the delivery time for customers, and also drives foot traffic in our stores.
So, we're going to continue to scrutinize the number of stores, but if we believe a store can be a strategic initiative to help us to get products to customers faster, it will stay within our portfolio.
If we believe that store is insignificant or doesn't add any value to our strategic vision of getting products to our customers fast and at a great value, then those stores are no longer going to be around.
I think that's the most effective way for me to answer that question.
Well, I think the most important thing, if you go back to the comments that both <UNK> and I made, every single division positive comped in the month of July and we had positive customer traffic.
So that basically reflects that we had strength across the board: we had strength in home, we had strength in Sephora, we had strength in our custom deck business category ---+ which we don't talk a lot about ---+ and we had strength in apparel.
We were not shy in the first quarter discussing the struggles that we faced in women's apparel and jewelry in the first quarter.
And not only did those businesses improve dramatically in the second quarter, women's apparel positive comped in the month of July.
So we're pleased across the board and we think that the trajectory coming out of July is going to be positive for us and hopefully maintain us for the rest of the quarter.
Exactly.
Back-to-school area is included in all of those categories of positive comp in the month of July.
<UNK>, just let me add that July normally is a clearance month for us, but clearance is actually down for us.
Our regular-price selling was up mid-single digits in July, so we feel really good moving into third quarter.
Yes, the statement still holds.
I would tell you, obviously, that's not the expectations for the back half.
They're significantly higher than that.
The good news is a lot of the initiatives roll out.
But a lot of the initiatives like appliances, for example, as we roll that out, is really a no to very low inventory model.
We own the floor sets but not any of the other inventory until we sell it, so we've got the ability to flex up and down ---+ within a relatively moderate range.
So we feel good about the back half and our ability to adjust if we need to.
Well, we mentioned that we're going to be bringing Clinique into our Sephora assortment.
That's a huge accomplishment for the Sephora team, and we're very proud of that.
But we're also proud of some of the partnerships we have ---+ with <UNK> Strahan on the MSX and other future categories; with Ashley Nell Tipton, who was the winner of Project Runway, we have our boutique collection of plus-size women's clothing.
John is going to speak specifically about that next week and how we see that as a huge point of differentiation.
She's going to be launching two new capsules for us in September.
She has millions of followers on social media and has been doing a great job of bringing visibility and consciousness to what we're doing here.
But what I will tell you is that we are always looking for new brands that resonate with our customers, but we're also equally as focused on managing our current business and making sure that everything that we're doing and everything within our assortment matters to our customer and resonates.
So the short answer is we're always looking and always open for new opportunities, but we really feel good about our current assortment and how our customers are responding.
I'll take the first part of your question.
As you know very well, we have a history of sometimes moving too fast and making broad decisions without having good data.
So the first step is we're going to roll out appliances to over 500 stores, and we're going to expand our window treatment presentation in the same number of stores.
So you're going to see basically 100% of the appliance stores also have the expanded window presentation.
As it relates to Ashley's, we're very pleased with the performance of Ashley.
Just a quick data point: in the stores where we replaced our old furniture assortment and we brought in Ashley's, we've improved by 1,500 basis points of comp.
So the customers are clearly responding well, and we're working to get roughly 500 units of Ashley's online ---+ and that's going to be nationwide.
So you could say nationwide Ashley's will be available for everyone, because we're going to have roughly 5,000 units online.
John Tighe and I are working together with his team, and they are taking a hard look at where we have the physical space and where it makes sense to have the full allotment of our all-new home initiatives in one area.
As I mentioned, we have a couple of stores with the entire assortment.
That's not by accident.
We're testing the results.
We're understanding the overall lift to the total store.
And it's early days, but we feel really good about the progress.
But as we study the results, we'll make additional changes throughout the fall and the spring to deliver what we think will make sense for our customers.
So it's early, but we have really good plans.
And the good news on appliances, we talk about how sales were doing really well; we're also pleased that our gross margin performance is also exceeding expectations, and that's very positive.
Our associates are doing a fabulous job of selling the extended warranties which plays a huge role in that.
So I'll let <UNK> take the second part of your question.
Yes, good morning.
As far as the liquidation of our old, it's predominantly our private brands.
Bassett was just in a few stores.
That is all behind us.
Probably 75% to 80% of the liquidation is complete.
We feel good about where we are moving forward, and we don't expect any margin impact in Q3 from the remaining liquidation.
Sure, <UNK>; this is <UNK>.
I'll take most of these and <UNK> can jump in.
Q2 margin, the nice thing is some of our initiatives are starting to kick in.
We're starting to see benefits from our size optimization.
Clearance margins in the spring season: last year we got it to profitable, but spring season last year was still a loss of 4% to 5%.
And we almost eliminated all of that.
We're still at a slight loss for spring season in clearance margin, but making significant progress over the prior year.
In our logistics optimization, most of the heavy work is still ahead of us and most of the opportunity is still ahead of us, but we are starting to see paybacks.
And we saw some already in spring.
So those are the things that are driving it Dot-com continues to grow and we're seeing some headwinds in dot-com margin and the mix effect.
And then the biggest issue in spring margins was really coming out of fall season last year, really heavy in cold weather because we didn't sell it last fall, and then hoping to sell it this spring, and then the weather not cooperating with us.
So obviously we had a lot of clearance liquidation in Q1 and a little bit of that falling into Q2.
But as we head into Q3 clearance levels are down versus last year.
We feel really good given our inventories are down 1%.
Clearance levels are down more than 1% heading into the fall season, so we feel really good about that.
Regarding fall margin, we maintained our guidance of 10 to 30 basis points.
We ran flat for spring, so we do expect margins to be up in the fall season to get us into that range.
In my prepared remarks I talked about some of the opportunities we have.
But the ones that we're seeing benefit in spring ---+ around size optimization, clearance margins, logistics ---+ we expect to continue into fall season.
Private brands and private brand margin we expect to improve dramatically in fall, particularly given the inventory levels where we see it.
And we saw ---+ we made great progress in Q2 around private brands, so we feel good about where we were tracking there.
In addition, we haven't talked a lot about our loyalty program, but we've made changes to our loyalty programs.
The customer is reacting well to it.
We think we still have some opportunities there to drive it even more.
But the nice thing is it's significantly cheaper than our previously loyalty program.
So we expect to see a significant savings in the fall season related to that.
So we have a lot of initiatives that we're tracking to for the full season.
We feel good about fall season margins.
From an inventory standpoint we feel really good, whether it's apparel or nonapparel areas in the fall season.
Again, we have inventories right where we want them.
We think we have an opportunity to continue to run lean as we move forward, and we think that's going to be a big benefit to the margins as well, just not having that clearance hangover that we carried into this year ---+ and frankly, fought through most of fall season last year.
So we think we have some opportunities as we go up against that compare.
Well, I think if you go back the last couple of years in apparel retail, we've always ---+ appear to assume that the year that we're in is an anomaly, and I think we're realizing it may be a new normal from a trend standpoint.
So we're going to plan accordingly as it relates to heavy fall and winter goods to make sure that we don't put ourselves in a tough position exiting out of the fourth quarter.
But there are a couple of initiatives that we believe are absolutely weatherproof that are performing well for us.
Specifically, Sephora inside JCPenney: we talked a lot about how pleased we are with the performance.
I think again the biggest learning for us is that as we ventured out into some of these rural locations, we've seen our best and most spectacular openings.
And that gives us great optimism that we can open many more locations than we had previously anticipated.
So we think that's a weatherproofing category.
We talked a lot about appliances.
We know for a fact that that is a category that's going to work well for us as home formation grows, as the housing market continues to improve.
Data tells us that there's a ---+ call it an over 30% growth in the appliance area over the next couple years, and we know that there will be market share up for grabs with some of the disruption happening with some of the leading appliance retailers in the marketplace.
So we believe appliances is key.
Window treatments is another weatherproofing category.
Just as recent as 2006, JCPenney covered a third of the windows in America.
We destroyed that business by the resets that were done in that area.
And as I mentioned in 500 stores we're going to go back and expand the space and update it, and we're going to get almost back to the presentation we had when we were the most dominant retailer in America in windows.
So those are at least a handful of initiatives that we think are absolutely positively weatherproof.
Not to mention, we'll have 5,000 units of Ashley's furniture online.
So we're going to continue to focus on apparel; we'll always be an apparel retailer.
We've spent a lot of time, John Tighe and his team and the sourcing and our international team on great supplier relationships and reestablishing private brands.
But we think we're going to have more differentiation headed into the fall than the traditional mid-tier department stores that will enable us to react more effectively irrespective to what the weather is.
Yes.
On the growth, obviously, appliances will be net new in 500 stores.
We'll have a Sephora in roughly 60 stores; we think that's a plus.
We have the center core, which we didn't spend a ton of time on, in over a third of our stores.
And a simple data point: in the stores where we reset the center core area, they are outperforming the Company by 700-plus basis points of comp.
And that's going to be full benefit in the second half.
We have Boutique, which is our plus size women's shop, in roughly 200 stores, which will be fully net new.
We have buy-online-pick-up-in-store same day which will be available in the fall, 100% net new.
And we mentioned the partnership with <UNK> Strahan with MSX is going to be in 500-plus stores.
So a lot going on.
We talk a lot about the challenges with apparel this year, but the one category that is growing is active.
And we spent a lot of time talking about our partnership with Nike and the significant performance of our private brand Xersion.
All of those are basically net new categories that we believe will resonate well with our customers, and there are a few more.
One of the reasons why we've maintained our sales guidance for the year, because our pilot results have given us confidence that we'll see strong results from these new initiatives; and we'll continue to execute all other initiatives as well.
Regarding service levels, we really feel good about the service levels in our stores.
Joe McFarland, our head of stores, is going to update at the Analyst and Investor Meeting next week, but we've trained all 100,000 of our associates on our new customer service expectations.
We're in the process of having mobile devices to help us with checkout.
Those devices will be ready for use within the next couple weeks.
So on back-to-school heading into holiday that will be a benefit.
And we're just working diligently to just create a better checkout experience.
We're replacing virtually a third of our point-of-sale units, with a plan to continue that process on into 2017.
So it's an ongoing effort, but when we look at our internal service results, in every category we're up versus the first quarter and up versus last year.
So to me, that's the data point that matters most that what we're doing is working.
No, it's a really good question.
In our pilots we chose three distinct markets that gave us the ability to test different marketing and promotional and advertising strategies.
We tested TV, preprint, digital, in-store signing, in-mall signing; you name it, we had some variation of it.
So from that we walked away with a really good understanding of what will resonate.
The challenge we face is until we fully roll out it's difficult to market on a national basis.
So we've been quiet in the marketplace from a marketing; we've been focused more on local and digital.
But when we have our full 500-plus store set you're going to see JCPenney with a loud voice in the marketplace to let the world know that we're in the appliance business.
We've consciously not done that yet, but our test provides us with a good understanding of what type of marketing channel will resonate.
So stay tuned and you should see us in the fall getting our voice out there.
<UNK>, it's a fair question.
Let me give you at a high level what's going to drive the comp and why we have confidence that we can achieve the comp side of it.
And I'll let <UNK> take the second half of the question.
As I said before, we underperformed in the first quarter and we acknowledge that.
I think that was pretty broad-based in apparel retail.
We feel really good about our performance in the second quarter, specifically the month of July.
But as we look at the balance of the year ---+ and remember on our Q1 call we basically outlined very a simple math that if Q1 was the baseline for the year, we believed that the incremental comp sales lift from the initiatives that we've laid out would get us to the lower end of our guidance.
Since we outperformed the first quarter in the second quarter, Q1 is not a baseline; the baseline has been raised.
So if you take our current performance for the first half of the year and you combine our expectation on our key initiatives in appliances, center core, Sephora, Boutique, buy-online-pick-up-in-store, and some of the other initiatives like active, we believe that those initiatives will be incremental enough to get us to our sales guidance for the year.
And that's just based on very simple math and based on very rigorous testing that we've done in our stores to understand the benefits of these initiatives.
So from a sales standpoint that's really how we view it.
I'll let <UNK> take the second half and talk to you about how we think the margin also plays into that.
Sure.
As <UNK> said, appliances will drive a relatively significant piece of our growth as we head into the fall season.
And it does run at a lower margin, so it is going to put margin pressure on.
I think ballpark we're looking at 30 to 40 basis points of margin pressure as we head into fall due to appliances.
So that is going to put some pressure on there, but it's calculated into our guidance and into our thinking, and we think we've got initiatives that are going to offset that.
As I talked about earlier, we are already seeing benefit in spring around size optimization, clearance, and logistics, and we think that ramps up as we get into fall.
We feel really good about our inventory position as we head into fall, and we think that's going to have margin benefits as we move forward.
And we know we've got other initiatives.
We've got a pricing team that we just brought up and we'll talk more about next week, and we'll get some benefits this fall.
Most of them will be in the future, but we do think we'll get some.
I mentioned loyalty really kicks in, in the fall.
And again we're in an easier compare against fourth quarter last year because we had some one-times that we don't think will repeat.
So, it is going to put pressure on there, but we think we've got that combated and we feel good about our opportunity around driving margin in the second half.
Well, I think, <UNK>, Wednesday is really going to be about outlining really the strategic future of J.
C.
Penney.
If I'm an analyst or an investor I want to understand the strategic relevance of a 114-year-old retailer in this very dynamic marketplace.
So what I hope to do next week is to introduce what I think is one of the best management teams in retail to our analysts and investors, but also to lay out in a high degree of detail how we think we can win, not only in 2016, but over the next two to three years, and why we believe that we have some key strategic initiatives that will allow us to be a much better retailer and to be able to take market share and drive profitability in this very dynamic retail environment.
So it's really about the strategic relevance of our Company and the steps we're going to take to not only exist but to flourish in this retail environment.
Mike, this is <UNK>; I'll take that.
Obviously, we think longer term appliances are going to have a significant benefit to our credit.
We are, as <UNK> said ---+ I think we're penetrating 70%, give or take, of appliance sales on our credit card; opening a ton of new accounts in that area.
We think as we continue to roll that out and partnering that with window and Ashley and our pilot of Empire and some of the other things we're doing in home, we think there's a real opportunity.
I don't think we'll see that in fall.
I think will continue to ---+ credit income was positive in Q2, but we do expect some pressure as we get into the fall season around credit income.
But we think longer term as we get into 2017 that will be a real benefit for us as we drive both penetration and credit income from that penetration.
Yes, we're starting to see bad debt in shop.
It's not terribly bad, but it will put some pressure on fall versus last year.
Sure.
The first is obviously we run a lower margin in dot-com.
The actual margin on the product is roughly equal to our brick-and-mortar, but when you put in shipping it has a negative impact.
And as we continue to drive dot-com business significantly faster than our brick-and-mortar business, we're seeing a mix impact there.
We don't think it's significant moving forward, but it is there, and I think all retailers continue to experience that.
From an EBITDA margin standpoint, fortunately, our dot-com business is profitable, so we feel really good about that.
So as we continue to grow that, we don't expect it to be terribly dilutive to our EBITDA margins as they continue to improve as well.
So we are profitable there and we think we can continue to drive our EBITDA goal as well driving dot-com sales.
I'll just ---+ at a high level, I can give you the most recent data.
Obviously, we spend a lot of time with mall operators understanding their strategy to redesign the mall if there is an anchor store closing.
But also we look at the data.
So at a high level, when a Sears closes in a mall that we're in, it's a net positive for JCPenney.
Our sales increase.
In some of the most recent Macy's closures in malls in which we occupy, it's been a net positive for JCPenney.
So for us, are we concerned.
Of course.
But our data tell us that because the closings are well telegraphed there are specific things we can do to take market share.
One of the reasons we're in the appliance business in the first place is because we observed a potential opportunity as Sears continues to redesign their business model.
We believe that there will be appliance market share up for grabs.
And because we share over 400 malls with them, we felt that we were in the best position to pick up some of that share.
So the data tells us that it's a net positive when these anchors close.
Now, the caveat to that is that there will be some situations that we are pretty sure about that the mall will be severely impacted.
In that case, we'll make a decision to do something different.
We have no expectation or no desire to operate unprofitable stores, nor do we have any expectation or desire to keep stores in our fleet that bring no strategic benefit to our omnichannel strategy.
So we're going to look at it very clear-eyed and do what is in the best interest of the Company and the shareholders.
<UNK>, I can refer specifically to the test results.
Over a third of the customers in our test markets were new customers to JCPenney.
And roughly a third of those customers were new credit customers as well.
They were predominantly a female at almost a rate of 70% and, obviously, predominantly homeowners.
So the ability to attract a new customer, as <UNK>, mentioned, the ability to grow our credit portfolio ---+ and, by the way, when those customers came in they purchased more than appliances, so there is a halo effect, so to speak, that will be the resulting impact of having appliances in the store.
So the reason why we are aggressively rolling out 500 stores, which as you know very well is not an easy undertaking, is because the results were so compelling.
And the good news is, as I mentioned, our sales are exceeding expectations thus far and our gross margin is exceeding expectations.
But we're going to learn, and we have some big events coming up in the fall that we will take really aggressive steps to see if we can attract even more new customers to JCPenney.
We want to thank everyone for your time and questions today, and we look forward to seeing many of you next Wednesday in Dallas for our Investor and Analyst Meeting.
Thanks again.
