JC Penney 2Q15 Earnings Call Notes

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Betting on Sephora to anchor center core growth

“we have said many times before that Sephora anchors our center core growth strategy comparable store sales through our Sephora inside J. C. Penney locations grew double digits in the second quarter. We have Sephora in over a half of our stores now and is also available on jcp.com. I’m very pleased with this new digital expansion of our partnership that we launched this past quarter. Sephora not only drives traffic in sales of J. C. Penney it serves as a point of differentiation that cannot easily be replicated in our industry.’

Home Depot and Target execs joining

“I’m also thrilled that we just attracted two key executives at J. C. Penney as part of our Omnichannel efforts. Mike Amend formerly the Vice President of online, mobile and omnichannel for The Home Depot joined our team on August 4 as Executive Vice President of Omnichannel. Additionally Mike Robins formerly the Senior Vice President of Global Supply Chain for Target’s U.S. stores joined our team this week as Senior Vice President of Supply chain”

Committed to becoming omnichannel retailer

“we are committed to become a world class Omnichannel retailer. We understand the change in dynamics of retailer, we also understand that attempting to recreate a free 2011 J. C. Penny would not work in this new Omnichannel world, therefore are adjusting our business model and our leadership team to compete on this new Omnichannel retail landscape.”

We need to work on the science of retailing

“Where we need work is and what I call the science of retailing. Our size optimizations is not good, our replenishment in flow back is not efficient. We have significant improvements we have to make in the supply chain to lower the cost and increase the efficiency. We have to make sure our marketing is less broad and more one-to-one which is a cost effective and also creates a high return on ad spend.’

Going to reap the benefits of our Oracle systems

“I can’t overstate the importance of merchandizing systems that we are going to reap the benefits from Oracle because it’s going to provide a lot more efficiency”

I come from a world where the low cost retailer will always win

“We know that we have to aggressively look at cost and we started I think the second quarter performance should reflect that we are taking it very serious stands on making J. C. Penny a more efficient in low cost operator. I come from a world where low cost retailer will always win and so we are taking a very hard look at everything that we are doing to ensure that we are focused on an SG&A percent and SG&A spend that is relevant for the business model that we currently operate, not that we operated pre-2011.”

We don’t have to build DCs because we were a catalogue retailer

“From a CapEx stand point we have a tremendous advantage, many retailers that are ramping up into an omnichannel world, they have to make significant capital investments in constructing dot.com distribution centers, because we are former catalogue retailer. We already have the supply chain infrastructure in place to leverage. ”

Going to start looking at a growth dollars per square foot basis

“We’re going to also take a hard look at every single thing that we sell and we’re going to start look at the business not only from the sales per square foot for growth 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.”

Spending more time listening to how customers think of us

‘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 the leaders of the company sitting around in a conference room deciding what we think the company should be.”

Private label is increasingly important in omnichannel

“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 on national brands while increasing their percent of online business will have to deal with some very capable, very capital intensive competitors of 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 on omnichannel retailer and protect yourself of a profit and from a value standpoint unlike most retailers in our space.’

Even though investments weren’t accretive to the business, the stores don’t look tired

“although some of the capital investments were not well thought out and they have not been accretive to the business, they have done a really nice job of cleaning the stores, brimming the stores and making them more modern. So we had an advantage that we put a lot of capital into the business over the course of last five years and so we are not so committed to going in and fixing stores that are broken out in all because we fix a lot of areas.”