JC Penney 1Q15 Earnings Call Notes

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Switching from Defense to Offense

“2015 is off to a great start at JCPenney. This year, we are switching gears from defense to offense. We’re focused on taking back market share and restoring the profitability of our business.”

Strong across all regions

“Geographically, all regions posted positive comps this quarter, with the West and Central regions posting the highest gains over a year ago. Easter was strong for us across the board, with the apparel businesses driving significant growth in Easter categories compared to a year ago.”

Saw more customers shopping online shipping to store

“we saw gains associated with the continued development of our omnichannel capabilities. For example, J.C. Penney offers customers the ability to buy online to ship to any store in the Company. And in the first quarter, we saw more customers choosing to buy online and ship the order to one of their favorite JCPenney stores. This results in more trips and add-on purchases when they visit a store to pick up the order. And on average, a buy online ship-to-store customer will purchase additional merchandise 20% of the time when they visit a store.”

Omnichannel customer shops more frequently than brick and mortar

” an omnichannel customer shops 2.5 times more frequently in a year than a traditional brick-and-mortar customer. So, it is essential that we continue to convert store-only customers to omnichannel. And later this year, we’ll be rolling out buy online pick-up-in-store same day in several key markets with a Company-wide roll out planned for 2016.’

Using Oracle for better inventory planning

“We’re leveraging this significant investment the Company made a few years back to install Oracle Systems to enable us to optimize our sizing, merchandizing planning and localization of our assortment. The ultimate goal is to get the right product to the right place more efficiently which will reduce mark downs, improve our gross margin and gross sales.”

We’ve spent a lot of money on technology. We didn’t have to spend as much on infrastructure because of our catalogue business

“if you look in the slides we provided, you will see we made an enormous investment in CapEx over the last seven or eight years, about $4 billion between the Oracle tools, the investment in home remodel and the visual clarity that we added to the stores, as well as the number of IT investments in digital. So the other advantage is, we’ve had the infrastructure from our catalog operation. We haven’t had to invest in warehousing and additional capacity that some others have had to invest in.”

Refocusing CapEx on center core growth initiatives

“we are refocusing our CapEx primarily on enabling the growth initiatives in Center Core, in the footwear changes, in the Sephora investments and we think these are relatively quick pay back investments and we pace those over the next several years to be sure that we are ahead of the plan to get to the 2017 EBITDA number”

We have a great catalog infrastructure already

“JCPenney is a company that has a great catalog infrastructure and so as we think about CapEx for omnichannel we are spending most of that on digitizing the infrastructure. So we are not building DCs, we are just trying to create platforms to digitally connect those DCs to the customers for what we call seamless transactions for them to purchase in-store, online, et cetera.”

The omni-channel customer is the best customer

“I’m just saying in terms of looking at the industry survey for mall traffic versus our mall traffic, we tend to be a bit better than the metric which says that we’re more of a destination in some respects than the inline retailers. I think we all know that omni-channel is the key to getting customer loyalty and greater spend. So it’s almost not as important as to exactly where the traffic is where do they shop, we know that somebody shops omnichannel slightly be three or four times, valuables of the customer that somebody just comes to the mall or just shops online. So we track it clearly, we prefer obviously success across all channels, but ultimately it’s the omni-channel customer that’s going to be the best customer for us.”

Real estate portfolio is not a top priority for us right now

“we continue to look at what’s happening in the industry between the sale leasebacks and the REITs that our competitors are doing. We spend a lot of time looking at that and we’ll continue to look at it, but given the real estate turmoil and just the overall complexity of those deals, there is a tremendous amount of complexity there. As Mike said, it’s not top of our priorities right now. We’re focused on driving EBITDA and driving topline results and we’ll continue to look at it and there may be an opportunity for us down the road, but it’s not top priority right now.”