JCP
#What I was saying on the apparel side in the quarter, I mean in women's apparel ---+ I mean we were really light across the board.
The only really bright spot was active wear was significantly up.
And we are pleased with that and we are very pleased with our private brand Xersion as well as our great partnership with Nike, it really helped to drive that.
As it relates to Home, all of our initiatives are in our 2016 capital plan.
I mean 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 are not holding inventory.
So it is a low risk strategic investment for us.
We are going to roll out appliances and the average store will have between 120 to 230 actual appliances in the store and will have over 1,200 online starting next week.
But we will own no inventory in any distribution center.
The same with Ashley's, we are going to own only what is in the store, we are 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 is a pilot.
So we are 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 have had great history in, we just want to regain it and we think we can.
We were pleased with the Mother's Day selling season.
I mean, that is 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.
Well, <UNK>, 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 were opening 60 Sephoras.
We were rolling out center core to one-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.
And I didn't ---+ I failed to mention the windows in the 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 believed 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 is a permanent shift, but we believe that it is something that we'll be able to recover from to get to that 3% to 4%.
We also understand that we are going to be in a much better position heading into 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 a 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 are 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 will make the necessary course corrections.
So we are not swinging for the fences here.
We understand what we have to do; we understand what our forecasts our and our receipts will reflect that, and we will make the adjustments along the way.
But it is really based on the confidence of our initiatives, it is based on the current trend and how the trend improved coming out of early April, and we are hoping that trend continues.
Sure, <UNK>, this is <UNK>.
I will 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 probably wanted, but we expected it to be a cold February and expected to be able to sell that, and frankly sell it before it got to clearance.
And we did not sell it in February.
The customer wanted spring in February.
And as we got into March and April, the customer ---+ the weather got cooler than seasonal, and the customer didn't want spring anymore ---+ 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.
Now clearance was up for the quarter, but the over penetration of clearance was what 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 on markdowns going into Q2.
And then when you look at the efficiencies we have as we continue to look at our supply-chain initiative, the pricing analytics team we are 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 is going to have particularly in the third and fourth quarter on our margins.
Well, I think as a reminder, we have a new supply-chain leader that we brought in in 2015.
And really what is 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 is really driving cost 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 US that were shipping garments hanging in the 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 a truck to take those transportation costs down and improve the fill rate and the (inaudible) of goods that is delivered to the store.
We have been extremely pleased with the results of that and it is something that we will continue to benefit on.
Mike has also brought in some outside help and some technology to help us with the optimization of the network, making sure that we have the right DC locations, we are using the right over the road lanes and that we are 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 are pleased with that we think will reap big benefits in the future.
The short answer is we are very pleased with the change.
We are seeing incremental traffic growth, we are actually seeing better revenue.
And surprisingly what we didn't anticipate is that we are seeing a higher quality of associate.
It is so much easier for us to recruit high-quality stylists with an existing clientele and book of business come and work for that InStyle brand of salon than a traditional JCPenney salon.
We are still learning.
We are going to roll out a little less than 100 locations this year for sure.
We are making tweaks throughout and we are also excited about a new online scheduling system that we are rolling out companywide that will modernize the way a customer can make an appointment and update that appointment.
So all those things are on the way.
But so far we are very pleased and we think this will be a game changer for us as we figure out what their perfect model is.
Okay, I will take the e-commerce question and I will let <UNK> take the inventory question.
I mean we are 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 during the turnaround efforts e-commerce was dramatically impact and really we had a philosophy that e-commerce should just reflect what we had in the store, just extended sizes and colors.
And as I mentioned, we brought Mike Amend on board and he has recruited some great talent and really inherited some talented leaders and they've really accelerated e-commerce in a big way.
We are pleased with the mobile strategy; we are 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 is in beta and it is performing exceptionally well.
We are going to be rolling out Buy Online Pickup in Store same day within the next couple months.
And as I mentioned, the pilot results have been exceptional.
Anytime you get a 40% attach rate with customers coming in that is exceptional.
We are very pleased with the navigation, we are pleased with the fact that we have 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 will 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 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 are excited about creating true fulfillment locations from our stores.
Today our stores are basically in the save to sell mode, meaning if we are out of stock in a dot.com DC the order reverses to a store to pick it and ship it.
And we are in the process of identifying stores and they will be the primary fulfillment location, which we think will allow us to save delivery costs and also give us the ability to ship same day and next day and some examples.
And that is how we want to leverage 1,000 stores to really be a more efficient retailer.
So, we are very pleased.
The growth has been an incredibly strong and is maintaining and we see it only getting better.
So, I will hand it over to <UNK> to answer your question regarding inventory.
Yes, with regards to spring seasonal, we feel like we are in really good shape.
Our inventory growth, as I said earlier, is predominately in basics 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 area is really flat to down.
So we feel like we are in really good shape as we head into Q2.
So, on the expense cuts, I think it is all about being operationally disciplined.
Joe McFarland came in to run store operations and really the story 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 and 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 are able to reduce 0.5 million hours, 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.
Now as <UNK> mentioned, we are not expecting to replicate our Q1 SG&A savings throughout the year, but I think what we proved in Q1 is that we have a lot of efficiencies remaining that we can go and we can capture and that is just one example of an area that we think is opportunity rich.
And as we look around the entire Company and we implement technology we know what technology will allow us to reduce expense because we'll gain efficiency.
So a lot more to come.
And again, I am not going to apologize that we are going to be relentless on taking our cost 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 will let <UNK> take the second part of your question.
Sure, regarding debt, refi ---+ as we have said, we continue 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 are pretty constructive right now, so we'll continue to take a really hard look at that.
And hopefully we will have more to say about that at the end of Q2.
It is 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 we will get an overall sales lift, we will see the customer shop in more places than a Sephora location.
And as I mentioned in my prepared remarks, what we are most pleased with is that early on in our Sephora relationship we had a 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 have 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 received that new environment sales are up relative to their peer group.
And we believe we are going to see the exact same thing to happen with appliances and we believe we are 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.
Well, 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 have 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, has taken the lead in really going through our own version of category management and just asking a very simple question, what is 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, by 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 are excited about the possibilities, but we are very confident that John and his team will help us to understand what works for JCPenney.
So more to come; we will keep you all updated on the progress.
Well, 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 have 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 have seen service scores go up on a weekly basis in the store based on the training and based on how it is 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, value is our goal for our customers and we want to be the preferred choice when they want to come in to buy anything.
Well, great question.
On credit, because the quarter was down, I mean we still are very pleased with the progress that we are making on the number of applications, new accounts, all were up and penetration was up.
So again we are excited about that.
We are also pleased with the approval rates and everything.
So we are all headed in the right direction.
So penetration up roughly 240 basis points in a tough top-line quarter, we are very pleased with that.
Regarding loyalty, we launched a 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 is 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 is 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 are 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.
Well, I think one of the key changes is the expiration of points.
In the past our program was very confusing, we didn't leverage the data real 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 is a bad equation for any retailer to have with a consumer base.
The other part that we changed was we wanted to gain more benefit to our credit customers.
So if you are a credit customer we wanted you to have a greater portfolio of benefits which is also very important.
And candidly, we are piloting different programs around the country just to continue to get a read on it.
That is one of the reasons why I am hesitant to get into a ton of detail because we are 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 early results, but we want to make sure that we design a program that will really resonate well with our consumer.
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.
