JCP
#<UNK>, I'll start.
This is <UNK>.
We're quite gratified by the start in February.
Frankly, we're had a plan, despite the inclement weather as well as the port issues.
So we feel we're off to a good start.
But it's certainly early in the season.
I think that we plan well.
I think across the four quarters, to be sure that we continue our improvement, we recognize that we have to compete aggressively peer-to-peer at this point.
We've fixed the vast majority of the issues that were plaguing us in the past.
Margin improvement is still available, as <UNK> mentioned in his comments.
Part of that comes from obviously the restoration of our private brand mix and the growth in the center core categories, where typically, the margins are the highest.
So I would say there's nothing extraordinary about the quarterly progression.
<UNK>, this is <UNK>.
I would just add that in our three-year plan that we laid out in October, we laid out a 36.5% margin.
We know there was upside to that or expect upside to that.
This gets us not all the way there, but pretty close.
And we expect that there's continued upside beyond this.
But just like we said at our analyst day, we continue to be conservative on that.
And a lot of our initiatives, particularly center core, kick in the second half with their margin benefits.
So we'll wait and see as we get through the year.
First of all, it's absolutely in line with what we said in October and the 5% is kind of the number at the top of what the range we're providing at this point.
It obviously grows throughout the three-year period as we kick in with, for example, the center core initiatives pretty much don't start until the fall season this year, so that benefit will gain momentum throughout the three years.
But our EBITDA commitment is clearly what the team is focused on.
Well, the strength, as I mentioned in my remarks, is our apparel business.
And we keep looking back to what our business was like prior to the previous strategy.
And we've got pretty much full recovery in fine jewelry; very solid recovery in the big apparel businesses.
So that would argue that the areas that we have focused in the accelerating growth are the ones that have the most opportunity.
So footwear and handbags and kids and home as well as the dotcom business.
So we know we have 87 million active customers in 2011.
We have 87 million active customers today.
The issue is that do we have the attractions by category so that their spend actually gets back up to the level or above that we ---+ what we are used to.
<UNK>, this is <UNK>.
I'll take most of those.
I'll start with CapEx.
We spent a little over $250 million this year in CapEx.
We expect next year to be roughly in line with this year.
Depending on some of the tests we are running, it could inch up slightly, but we expect to be in line.
And we expect liquidity at the end of 2015 to be in line with this year, with free cash flow neutral.
We'd expect to still have roughly $2 billion to $2.1 billion worth of liquidity at the end of next year.
We continue to look at the balance sheet and look at are there opportunities to monetize things.
I think we did a nice job last year monetizing assets and we'll continue to look for those opportunities this year.
Frankly, there's not a lot baked into the guidance for free cash flow neutral.
So anything substantial there would be upside to that free cash flow number.
We obviously do have a real estate term loan that we looked at, that has a lot of assets collateralized in that.
As the call provision on that rolls off, we all look at other opportunities around that as well.
I'll start with that.
I think the team has done a good job in the last several years of taking a hard look at where we invest SG&A as opposed to overall looking at things from a negative point of view.
We know that process improvement is the most effective way to get savings to keep the customer-facing associates active and supported by the tools they need to do the job.
So we still think there's more process improvement available in terms of on the supply chain side as well as in store operations.
We also are looking at administrative expense in the non-revenue-generating areas.
We also as a team believe that it's a team effort, that as a leadership group, it's our responsibility to manage our expenses down.
In the past several years, incentive compensation has not been paid to the team because of lack of performance.
We'd like to say that we want to make sure that that part of SG&A starts to get back to a normal level by earning it the old-fashioned way, by just being successful across the board.
So we felt that 2014 was a great start.
Our people felt good about the progress we made and we were able to pay incentive comp.
So I think it's a number of initiatives, but is clearly one of the objectives of the team.
I think that's a great question and, frankly, plays to what we talked about in October.
We really haven't added a lot of brands from outside.
We exited 14 brands that did not resonate with the customer from the previous strategy.
That was a difficult challenge during 2013 and the first part 2014.
So where that is behind us pretty much, we've been able to bring back Ambrielle, restore St.
John's Bay to the level that the customer really expected.
Liz Claiborne has been very strong.
So our private brands are performing well and back to nearly 50% of the total brand mix, which is essential for two reasons.
One is it delivers great value to the customer.
And importantly, delivers great profitability and gross margin for us.
On the national brand side, our strongest partners are the largest brands, the Levis, Nike, Dockers, Dunner, Carters, IZOD, Van Heusens of the world.
They are great partners.
They stuck with us through our difficult days and now all of us are quite optimistic about our ability to drive those businesses.
Probably the thing that's the least understood by many is our attractions to the exclusive brands.
Quite honestly, Sephora is just such a great opportunity for people to experience beauty in a completely different way.
It's been greatly received by customers.
We're now in 492 locations and continue to grow that business.
It's a centerpiece of center core as fine jewelry is.
I think that the other exclusives, the Disney shops that are, frankly, legitimate full Disney presentations of merchandise and experience.
You'll see another 100 of those rolled out this year, with Disney Baby as a different idea that would be in 30 locations later in the year.
Modern bride, our engagement jewelry, is an attraction.
And we're seeing great response to that branding.
And Mango, a fast fashion brand inside the store; Call It Spring and Aldo, a shoe concept inside the store.
So we think the combination of private brand, value, and style and quality, great national brands they expect to see in the store, and attractions and things they can't find other places leads us to a desire to create other attractions like that.
And the salon is a terrific opportunity to take the opportunity of at least 850 salons in our Company that we are branding as salon by InStyle, working in partnership with InStyle magazine and Time Inc.
That prototype will start to roll out this year, with 15 stores: 5 smaller, 5 medium, and 5 large.
I wouldn't underestimate the opportunity for us to really have that aesthetic be attractive to our customers, just like Sephora was attractive to our customers, when they didn't really know the concept.
It's really taken off, we believe.
The salon business over the next several years will have the same opportunity.
So we're putting a lot of support behind that in terms of enthusiasm with our team.
And you'll see with our stylists, with our upgrade of the environment of the salons, and the back-and-forth interaction with our other merchandise categories.
So all of those things added together, I think we have very strong proposition for the mid-tier customer.
We like to say that it's three Ps: it's having the right people, and we think we have the warrior spirit with our people; the right product, which we think private brands is the centerpiece for the other attractions and national brands; and clearly, the place.
We think the store as well as our omnichannel capabilities within dotcom that we can give the customer a very balanced experience that she can afford and that speaks to her family.
That's why we say when it fits, they feel it.
So it's a bit of a mouthful, but I really believe that the viability of JCPenney going forward has never been stronger by positioning ourself right in the middle of the mid-tier with all those attractions.
Sure, <UNK>.
First on sales, as we mentioned earlier, we do expect most of our initiatives that we talked about at the analyst day, the one that kicks in for this year, kick in later this year.
In addition, we are up against some softer comps in the third and fourth quarter ---+ or third quarter.
And also the first quarter is impacted by our liquidation of a lot of clearance last year.
So based on that, we don't see dramatic swings in the quarter by sales, but we do think that there's more opportunity as you get towards the back half of the year than the first half.
And clearly, we expect Q1 to be on the lower end of probably all three of them.
From a gross margin standpoint, because of all that clearance selling we took last year, the biggest opportunity in gross margin is in Q1.
We do think that the normal historic calendarization of gross margin will still apply, so we don't see any difference in that.
But we do think from a comparable to last year, we've got the most upside in Q1.
Then on SG&A, we're still working through the third and fourth quarter budgets, but we expect that SG&A savings to be pretty consistent throughout the year.
Yes, I think it was our double-digit increase in home last year.
We know we have an opportunity in dotcom to grow back the home business more traditionally.
Got clearly close to 50%; it's a little over 40% at the present time.
There's still space opportunities for better productivity in home and we think we have some attractions that can make it more productive.
The soft part of home is now pretty much in the right proportion to (technical difficulty) working aggressively in terms of you have the right promotion, the right product the right (technical difficulty).
One advantage we have is, frankly, we have trained sales associates in some of the tougher businesses to run in window and custom decoration.
So we wanted to capitalize on those strengths that some of our competitors don't have.
We also know the customer wants to have a sense of anticipation that they're going to find something new every time they come to the home store.
That's something we're working on.
But you're right to identify home as one of the big opportunities.
It's one of the things we said at the analyst meeting, that we knew that we had to get the productivity back up and earn it the old-fashioned way by getting customers into the store.
One of the advantages of the new environment was it's very, very attractive and light and airy.
One of the disadvantages ---+ in some ways, it looks expensive, so it's taking a while for our customers to realize that the quality of our private brands, the shopping experience itself should not be intimidating, and they should feel welcome there.
And it gets better every month.
So you're going to see the new home book, the 120-page book, drops in two weeks and I think that will help attract customers that maybe have lost track of JCPenney because we stopped sending catalogs three or four years ago.
Sure.
First of all, we really value the sales associates and our people and want to make sure that we are comparable in the market we have in various parts of the country.
We have very few people that really are in the minimum wage category, just so you know.
I think people forget that retail is a great entry point for a great career for many people and they have a huge opportunity for improvement.
So a lot of our entry people come in on the basis they're going to be a sales associate and then end up growing throughout their career into other opportunities.
So we obviously are going to watch what's going on and making sure that we're not going to lose to a competitor and making sure we get the right people and have them properly compensated.
So I would say it's certainly not anything that's a (technical difficulty) from what we're doing today.
I think maybe ---+ there aren't many situations in retail where you completely change the inventory within a short period of time.
So a lot of our clearance from the last year or so has been the discontinuation of the different strategy.
And in <UNK>'s remarks, he made reference to the fact in the third and fourth quarter, the non-clearance selling was actually much more successful than what might be visible by just looking at the comps.
So the 8% range in the fourth quarter and a little over 5% the third quarter, which really came across as flat with the total comps.
So the clearance part really was dragging us down.
And so we obviously were not getting the kind of return on clearance that you'd expect in a normal situation.
We think this year is much more likely to be on a go-forward basis, we're able to deliver margins that are accretive to profitability.
So we think there's still more upside there.
I can't quantify what it will look like.
Our new clearance strategy in shoes and throughout the store is resonating with customers.
They like the idea we have clearance zone that they can find.
And we're selling in shoes, for example, selling more on the first markdown as opposed to the third markdown by the way we are marketing it.
So I think our people are motivated to sell it well.
At the same time, we also want the customer to respond very well to our non-clearance merchandise, which seems to be on a good trend.
Yes, this is <UNK>.
We really feel like we rightsized our inventory as we went through 2014.
And as we expect to grow sales next year, we'll expect inventories to grow roughly in line with our comp store sales.
I would just make the comment that I really have a point of view that the mid-tier customer, frankly, has languished in terms of average weekly wage and hours worked and so forth.
So in many cases, I think the extra savings they're getting, they're are either paying down their credit card or they decided to reinvest it in their family budget.
We haven't seen a surge as a result of that.
I think we've had to earn every dollar of sales that we have gotten.
But it's certainly a positive as opposed to a negative.
Because I think the concept that somehow everybody's just go out and spend their gas savings on discretionary items, I'm not sure that's played out.
I think the people in the lower quartile obviously struggle and every dollar is ---+ goes right to the family welfare.
And the people in the upper quartile, obviously it's not as big a factor.
So I think the two quartiles we do deal with most, I think it's favorable, but not probably measurable in our results.
This is <UNK>.
So our total SG&A for 2014 was $3.993 billion, where the $50 million to $100 million savings was off of that number.
And then the store closings did have an impact.
It's $25 million to $40 million, give or take, for the store closings.
But in addition, there's ---+ obviously there was a lot of tailwinds, with raises and incentive comp and other things that we are overcoming within that number.
So it's all blended together, but net net we expect SG&A to be $50 million to $100 million less than it was last year.
Yes, this is <UNK>.
We buy in dollars, so I don't think it's going to be a significant impact to how we buy or the price.
What I will tell you is that we really believe strongly in our private brand strategy.
And we believe, as I said in my comments, that it is a point of differentiation that you're going to see us talk more about ---+ you're going to see it more in stores and it could be more prominently displayed in our go-forward strategies.
For a simple reason, it's exclusive to us and it's more profitable.
So we're going to continue to ramp it up, but we don't see any risk from a cost standpoint.
<UNK>, there's really nothing too material in and of themselves.
There is ---+ we still have some fringe land that we expect to monetize through the gain sharing we have with them; joint venture.
And there's still some PBAs that we're looking to monetize in a couple closed stores.
All in all, it's $50 million-ish for the year, nothing material, and no large transactions on the books right now.
That could always change, but nothing planned right now.
First of all, the book that we discontinued was one ---+ back when we had the Big Book, we had three Big Books a year, over 1,000 pages each.
The paper and postage of that obviously got to be a situation.
If we kept doing it, eventually it was going to be a big drag on the business.
This is a very different approach.
This is 120 pages.
It's more of a view book.
It recognizes fact that the customer ---+ I'll use an example.
We might have 20 beds to 30 beds in a home store that they can see what the fashion is by category and by bed.
We might have 150 beds online.
It's very hard to see 150 beds one screen at a time.
When you have catalog, the customer is telling us what they want to see more views of what we have.
And that encourages them then to go online or come to the store for the transaction.
So we think that we may be lost as many as 10 million customers to our home business by the discontinuation of the home part of our catalogs years ago.
So it basically is part of omnichannel.
It's a nondigital piece to omnichannel, but if the customers finds it useful, why not.
There are some other retailers who have chosen to go back in a much bigger way.
We're going to test this and see if this is the right vehicle.
If it's very, very successful, we'll obviously do more of it.
And if it doesn't give us the top-line advantage ---+ but most of the top-line increase, in my opinion, will be on online, because they'll have bigger opportunity to search and find the things they're looking for.
<UNK> may have a point of view on this, because he's obviously very omnichannel savvy.
<UNK>, the only thing I'll add is this catalog will also be repurposed as a digital catalog, which is something that the Company couldn't do back in the heyday of having the Big Book.
We see this as an inspirational strategy, where customers, to <UNK>'s point, can see a broader assortment.
But having the ability to make this digital, where customers can look at the item, go straight to the ordering process online, we think will be potentially beneficial.
But we'll see.
We're excited about the possibilities.
And if it works, it's something you'll see more of.
And if not, we'll go to Plan B.
But we think this will be a good way to continue to target those customers that were core customers at home years ago that stopped after the catalogs went away, to target those customers specifically to see if we can get them to come back and shop at JCPenney.
