JCP
#Sure, we have.
It's obviously very hard to pin down exactly but we think it's about 50 basis points impact that shifted out of Q2 into Q3.
I'd also add, though, that we think that's roughly the impact of Halloween falling on a Saturday at the end of the quarter.
So our third quarter we think it's about a neutral and obviously it hurt second quarter by about 50 basis points.
<UNK>, on the first part of the question I mean we have a high degree of confidence that the $1.2 billion target is achievable because as you noted we have multiple paths to get there.
It starts with sales but to your point sales in my view is not the key driver.
The key drivers are gross margin performance and making sure we control SG&A.
I don't think any of us can sit here and tell you that we are satisfied with our SG&A performance.
We noted we have to aggressively look at cost and we started I think the second-quarter performance should reflect that we're taking a very serious stance on making JCPenney a more efficient and low-cost operator.
I come from a world where low-cost retailer will always win.
And so we're taking a very hard look at everything that we're doing to ensure that we're focused on an SG&A percent and an SG&A spend that is relevant for the business model that we currently operate, not that we operated pre-2011.
And so as you root out bureaucracy, as you start to ask very specific questions on how you leverage not only structure but how you leverage third-party resources, you start to find very meaningful savings that you can identify.
We start to identify those savings and we believe we will continue to identify those savings.
So SG&A and just being a more low-cost operator is a key component.
The second component is gross margin.
We talked about the importance of private brands and I think for us we have a great foundation and Mike Ullman deserves a lot of credit for the efforts that he placed on creating a private brands infrastructure and sourcing infrastructure here.
I come from a retailer that was primarily nationally branded and we were very proud of that.
But when you are a nationally branded retailer you face enormous pricing challenges as you become an omnichannel retailer.
So we know that not only will our private brands give us differentiation they also give us the ability to have accretive gross margin performance.
While we are still very competent and very supportive of key national brand partners like Nike and Levi and Alfred Dunner and Dockers and Carter's and IZOD we're not going to lose those relationships because customers love those brands but we know private brands play a huge role.
And I mentioned pricing.
We have a huge opportunity in just the optimization of our pricing strategy.
We do it the old-fashioned way and we're going to modernize that.
So top line is important and we have a line of sight that we're going to continue to grow top line.
But we also will put intense focus on gross margin and intense focus on being a low-cost retailer.
And we believe those three things will lead us to that target, that's why we're so confident.
Sure, <UNK>, I'll take that one.
So we've done a lot of work around our balance sheet and we'll continue to do work in the future.
Right now we're sitting with about $4 billion in net debt or at least at year end we will have about $4 billion of net debt.
We expect to be able to throw off at least $500 million of free cash flow over the next two years which will obviously go to paying down debt and reducing that debt burden.
In addition to that as you well know we have the real estate term loan out there, the no call provision fell off in May.
We continue to look at options there on how we can increase the tenor, potentially reduce the collateral and/or improve the terms on that.
So we continue to work on that as well and we think there's some opportunity around that.
So we continue to work on it and we think as we move down our path to $1.2 billion we can continue our deleveraging process.
Great, thanks <UNK>.
Well for us we do believe omnichannel is a multiyear initiative.
So for us I mean we see it in a couple ways.
First, the benefits we'll be tapping into enterprise inventory.
One thing that we're very confident in is that our geographic location of stores is really a competitive advantage.
I remember years ago when many experts talked about how brick-and-mortar retailers would be at a significant disadvantage to pure play online retailers.
And I think now the sentiment has changed and the brick-and-mortar locations are a close to population density of being used for fulfillment creates a more real time, more same-day advantage to get close to the customer.
So we think enterprise inventory is a huge part of our success today and forward.
We also believe that when we are able to roll out buy online pick up in store or BOPUS same day that that's really the key game changing initiative for retailers.
And again as I mentioned we're going to be piloting it later this year with a rollout happening the first part of next year.
We are very pleased with the progress.
It can't be understated the importance of bringing in someone like Mike Amend who has an e-commerce background.
And Mike will be the first omnichannel leader that is truly an e-commerce expert who has real-time experience in managing e-commerce in different platforms and different businesses.
So he's going to bring a much more aggressive approach in to the business and we think that's going to allow us to grow and grow in a very efficient manner.
From a CapEx standpoint we have a tremendous advantage.
Many retailers that are ramping up into an omnichannel world they have to make significant capital investments in constructing dotcom distribution centers.
Because we are a former catalog retailer we already have the supply chain infrastructure in place to leverage.
So rather than spending significant capital building distribution centers we're spending less capital to digitize those distribution centers.
That's the key of bringing in Mike Robbins from Target to work with us on the supply chain side.
He understands this transformation really well and he's going to help us take the physical structures, digitize it so that we're actually a little bit ahead of our competitors without spending the same amount of capital.
Now we're going to have to spend capital but we're not spending capital on physical structures.
It's more the digitization of the structures which we think can be done and we're in the process of doing that right now.
<UNK>, we're pleased to say that we don't have one associate in the Company that's currently at minimum wage.
We've already taken action throughout the year to raise every associate above the minimum wage.
So we believe we're in a good position.
As <UNK> noted we're paying very close attention market by market to the competitive landscape.
Our field leaders have the autonomy to make the necessary decisions so that we can continue to drive talent.
And if we believe that we're not well positioned then we react without any bureaucracy to take care of the team's ability to recruit and retain talent.
Yes, <UNK>, this is <UNK>.
I will take that.
Last year if you look at the full year I think we improved gross margin 540 basis points.
As I said in my script we improved it in Q3 710 basis points.
We really drove margin in Q3 and we think frankly we did it at the expense of top line in Q3 and as you know we're up against a soft top-line comp and Q3.
Right now we expect to be able to drive the top line and our focus isn't to drive incremental gross margin in that quarter.
We still think for the full year we're on track to hit the 100 to 150 basis points.
We know we still have continued opportunities as we talked about earlier around private brand.
We're on track to be at least neutral gross margin in clearance but know there's opportunity to go beyond that.
And we continue to look at the penetration of private brands as well.
So there's lots of opportunities to drive gross margin and we ultimately think we're going to continue to get it closer to our historical levels through the 150 ---+ 100 to 150 this year and then into next year and the year beyond that.
But we don't feel that Q3 is really the time to try and pick up 50 or 100 basis points of margin.
<UNK>, the only thing I will add to that just to put it in perspective, I mean gross margin in Q3 of last year grew from the prior year 29.5 to 36.6.
And to <UNK>'s point, I mean that's pretty phenomenal growth I'm one quarter, and we're not taking or foot off the pedal.
We're going to continue to focus on growing gross margin the right way, but we have a long-term view so that we can have sustainable gross margin growth and not heroics quarter to quarter.
So we're spending a lot of time on process improvement, and we believe that all of those efforts are allowing us to improve it as we've done this year, and we have no intention of taking our foot off the pedal.
We just want to be realistic that last year Q3 was almost an anomaly, but we're going to stay very focused on it.
And we believe that we're going to hit or beat our expectation for the second half of the year and for the full year regarding our gross margin target.
Yes, I'll take those, <UNK>.
I think for women's, we're very pleased.
When you look at men's and women's apparel, they've been two of our strongest businesses for the first half of the year in a marketplace in retail that's probably not as commonplace as you would think.
So we're very pleased.
I think you're going to see more in the second half.
It is going to be a continued focus on style, quality and value.
We're very pleased with our national brands, we're very pleased with our private brands as it relates to those three things.
I think you're going to see more emphasis on special sizes, on petites and women's sizes.
Our customers continue to ask for more assortment in those areas and we're going to accommodate them because those customers are very loyal.
In addition to that, you're going to see us spend a lot of time on as I mentioned earlier the science of retailing.
We're going to focus a lot of our intention and efforts on the allocation process, on the replenishment process and on the presentation.
Those things may not sound very strategic but for a retailer the toughest thing to do is get the right product, the right style, the right quality and to get the customer to be committed to it.
We believe we've done that.
We have to now get the processes correct so that when she comes in her size is there waiting for her.
You mentioned kids.
Kids and home in my opinion were the two most devastated businesses in the failed strategy.
And we have made a lot progress on those early days for back to school.
We're very pleased with the performance we're seeing in the kids business and we hope to see it continue month after month, quarter over quarter.
We had a lot of brands we had to discontinue.
We had a lot of assortment changes we had to make.
We had a lot of size and a lot of fit changes to get more back to the traditional business that we're known for.
And we're seeing those improvements kick in and now we're focused on allocation, inventory position, etc.
We're pleased with our partnership with Disney.
We're rolling out Disney Baby and we're excited about that.
We are the only legitimate Disney Store within a store.
We're very excited about that.
And we have some other new initiatives we'll be rolling out later this quarter that we're very excited about as well.
And on the home side again I don't want to sound too boring but our biggest issue in home remains that we just have to get our inventory position correct.
We are still way too lean on some of the key categories like sheets and towels and bedding and we're working on that.
We've made improvements and you're going to see more improvements throughout the year.
We need to get our promotional cadence correct in that business.
We need to be more aggressive on leveraging square footage to get greater revenue per square foot and we're making those changes.
So we're pleased that home was one of our best performing divisions in the second quarter and we're committed to not again letting up until we get this business fully turned around in-store and online.
We're making progress.
<UNK>, this is <UNK>.
I'll take that.
Clearly we continue to see AURs moving up slightly but I agree with you I don't think that there's a lot of room to continue to raise prices in this environment.
So frankly we continue to see it and whether you call it traffic or conversion we really see it on that side of the equation versus the AUR.
The vast majority of it was from our cost-cutting efforts.
I think the total impact of the closed stores was less than $10 million a quarter from an SG&A standpoint.
So the vast majority of that is coming from our initiatives and really around back of the house and the stores because we don't want to impact the customer facing pieces and then as <UNK> talked about getting more efficient in our advertising.
And even the corporate overhead played a significant role in the third quarter and of course the credit revenue was up as well.
So all things are working from the SG&A standpoint and it's the initiatives we're driving not just the closed stores.
So let me, <UNK>, give you some more high level view and I will let <UNK> give you the specific numbers on productivity.
Candidly what we're looking at as we go back in time and we compare the business to previous performance is not necessarily trying to replicate some of the key metrics from the past but more focus on just creating shareholder value.
And I'm not making that statement to avoid giving you specifics.
But this is such a different retail landscape today versus 2007, 2008.
And my challenge to the team is that the things that we did during that time period to run an efficient world-class retailer simply won't work today because we're going to have to have a significant penetration of our business online versus in-store.
So from a sales productivity it's going to be difficult to do an apples-to-apples comparison because the emphasis on omnichannel is going to be so significant in the future versus what we had in the past.
We're also going to take a hard look at every single thing that we sell and we're going to start to look at the business not only from a sales per square foot but growth profit dollars per square foot to ensure that we are very efficient.
But at the end of the day the ultimate goal is can we create shareholder value with every decision we make to ensure that it is accretive to the overall business.
And Sephora and salon and center core are all areas that create revenue in a way that we didn't do it in the past and we didn't do it as efficient as we will in the future.
But the key will be to change the dynamics of the business, makes it very difficult to do an apples-to-apples comparison.
But I'll hand it over to <UNK> to give you more specifics on the numbers.
I'll just add I think part of your question was what part of our $1.2 billion dollars or what was the productivity embedded in that.
And as we talked about before we have a lot of growth initiatives around center core, around home and around omni that we feel really strongly about.
And we believe in our ability to drive to drive mid-single-digit comps over the next few years.
That said we really only need to be able to drive low single-digit comps to still hit the $1.2 billion.
So from the standpoint of what productivity improvements are baked into the $1.2 billion it's a 2% to 3% comp store growth over the next few years in productivity will get us to the $1.2 billion.
That said we expect to be able to drive them in the 4% to 5% to 6% range over the next few years as our initiatives kick in but we don't need to to hit the $1.2 billion.
Sure.
As I think you know in our real estate and other bucket we put income from sales of assets, other real estate deals, litigation and gains or losses from our JV and then we determine how many of those we think are truly one-time or not one-time.
So clearly some of the gain on sales of assets we felt were one-time, some of the other expenses that we incurred during the quarter we felt were part of the ongoing operations and did not back those out from an adjustment.
We did end up with a $19 million charge.
We'll tell you for the full year we expect to be that bucket to be about a $30 million credit.
On the traffic ticket average ticket value was up for the quarter.
We're not giving out traffic.
We're using transactions as a proxy and transaction counts were also up for the quarter.
Obviously it's early days but we're pleased with our performance and we're very pleased with our start to back-to-school.
It's actually a great question.
And the best way to answer it is that we allow our customers to define JCPenney.
We spend a lot of time since we brought on our new Chief Marketing Officer, Mary Beth West, asking customers what they think.
Rather than leaders of the Company sitting around in a conference room deciding what we think the Company should be we think it's more informative to reach out to the customers who have been very loyal to us who are not spending as much as they used to and not shopping with the frequency that we would like.
And we're asking them what would they prefer from a goods and services for us to carry.
Now the caveat to that is that we have one overriding objective and that is to create shareholder value.
And so as we create shareholder value we're going to take this Company and design it in a way that we're going to serve the customers within the demographic that we are best suited in a way that's more efficient than any other competitor in-store and online.
I can't minimize the importance of private brands as we strive to be a world-class omnichannel retailer.
Again any retailer that is increasing their penetration of national brands while increasing their percent of online business will have to deal with some very capable, very capital-intensive competitors who are great at price analytics.
But as we continue to focus on making our sourcing and private brands more efficient we believe we can become an omnichannel retailer and protect ourselves from a profit and from a value standpoint unlike most retailers in our space.
So the short answer is we will allow the customers to define who we are and what we are and our goal is to respond to that while attempting to create shareholder value in making this a world-class Company again.
Well candidly we would love to have more capital to spend.
Having said that if you look historically over the last five years a significant amount of capital was put into the stores.
And as I said earlier, when the Board and Mike Ullman first approached me to consider coming to JCPenney I candidly had not been in a JCPenney in quite a while.
And so I started to go around the country and just pop into stores to get a sense of the culture and a sense of how the business was running.
And my first takeaway was the stores look really good.
And I was surprised because the Penney's I remember was a little tired and a little worn.
But I would have to admit that although some of the capital investments were not well thought out and they have not been accretive to the business they've done a really nice job of cleaning the stores up, brightening the stores and making them more modern.
So we're at an advantage that we put a lot of capital into the business over the course of the last five years.
And so we're not so committed to going in and fixing stores that are broken down, tired and old because we fixed a lot of areas.
So the fleet in short I think is in really good condition.
Now we have capital allocated on a monthly, quarterly, annual basis for maintenance.
We're never going to slack on making sure that we invest in maintenance to keep our stores performing well, looking well and operational.
But having said that, we are going to also invest capital in improving our IT systems.
We're going to invest capital in digitizing our omnichannel platform.
And as we noted we are going to continue to expand Sephora in our stores.
We're going to have a commitment to center core and we're going to brighten and modernize the aesthetic outside of Sephora to improve our cross-selling.
And we're going to be committed to making our salons more attractive and we have 12 locations we've invested capital in and we're monitoring the revenue.
So we will invest capital in the stores.
We will be committed to expanding business shops in the stores and we'll be committed to making additional changes.
But we're going to be very prudent.
We're going to be very strategic and we're going to have to have a high internal rate of return for any capital we put in but if we can get that then we will invest it.
And we believe it will be very beneficial to the Company.
So this year's guidance is between 250 and 300.
We'll probably come in towards the high end of that range.
I would expect next year to be 300, maybe slightly above 300 in the year , beyond that 2017 we're probably looking at 350 to 375.
Can you help me with the question.
I'm not sure ---+ I mean obviously we expect to get to the $1.2 billion in EBITDA.
At $1.2 billion we think we will be throwing off $300 million to $400 million or more of free cash flow each year and then obviously we expect that to be able to use that to pay down our debt.
Sure.
So we have a real estate term loan out there today that's I think give or take $2.2 billion.
There was a 1% no call provision that rolled off in May.
It's not due until 2018 so there is no gun to our head.
But if there's something advantageous to the Company whether it's from the terms of the loan obviously extending the tenor of it or even to a degree we believe it's over collateralized and pulling some of the collateral out, those are all options that we're talking to some of our banking partners with to see if there's an opportunity to take care of some of that.
If the market remains strong there may be an opportunity to take care of that this year.
If not we're probably looking at taking extending it next year.
<UNK>, we are very committed to being promotional.
I think if we learned anything from the failed strategy is that this is a promotional space that we're in and we're going to have to compete.
Having said that though we think our current rewards program is not very good.
And so we're in the process of not only evaluating it but piloting different things that we will do and we're very excited about a relaunch and a redesign that we should roll out at some point in 2016.
And we think that will address one of your questions of making sure that we are rewarding key customers for their loyalty and not only rewarding them but we're able to capture very valuable data so we can have more efficient one-to-one marketing and communication with them.
In the meantime we're going to take on some resources, some very efficient third-party companies to help us run our pricing analytics.
As a mentioned I do believe that one of the reasons why we're not growing our margin as fast as we like in private brands is that we don't have a very efficient pricing strategy and it's very old-fashioned.
So we're going to spend a lot of time on that over the next couple of months and we believe that we have a lot of margin that we can gain from having a different point of view.
But we're going to stay aggressive.
We're not going to do anything to put top line at risk and we believe as <UNK> has mentioned that we have plenty of opportunity within the supply chain, plenty of opportunity within our marketing strategy, plenty of opportunity throughout our entire business to continue to find ways to grow our gross margin while we continue to improve the processes that will be long-term and sustainable.
Thanks each of you for your interest in J.
C.
Penney.
And we look forward to updating you on our business on our third-quarter conference call.
Thank you.
