JC Penney 2Q16 Earnings Call Notes

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J. C. Penney’s (JCP) CEO Marvin Ellison on Q2 2016 Results

50% of dot com transactions touch the store in some way

” over 50% of our dot com transactions somehow touch the store and that is before BOPUS, Buy Online, Pick Up In Store Same Day has been fully received by our customers. We’re still early days in that initiative but the early results are significant.”

Better trajectory coming out of July

“I think the most important thing, is you go back to the comments that both Ed and I made, every single division positive comp in the month of July and we had positive customer traffic. So that basically reflects that we had strength across the board. We had strength in home. We had strength in Sephora. We had strength in our custom deck business category which we don’t talk a lot about and we had strength in apparel.

We were not shy in the first quarter discussing the struggles that we face in women’s apparel and jewelry in the first quarter. And not only did those businesses improve dramatically in the second quarter women’s apparel positive comp in the month of July. And so we’re pleased across the board and we think that the trajectory coming out of July is going to be positive for us and hopefully maintain us for the rest of the quarter.”

Starting to think that some of the weather related patterns may be a new normal

“Well, I think, if you go back the last couple of years in apparel retail, I mean, we’ve always appear – assumed that the year that we’re in is an anomaly and I think we’re realizing it may be a new normal from a trend standpoint. So we’re going to plan accordingly as it relates to heavy fall and winter goods to make sure that we don’t put ourselves in a tough position exiting out of the fourth quarter.”

Have to show the strategic relevance of a 114 year old retailer

“Well, I think Paul, Wednesday is really going to be about outlining the really strategic future of JCPenney. If I’m an analyst or an investor I want to understand the strategic relevance of 114-year-old retailer in this very dynamic marketplace. And so, what I hope to do next week is to introduce what I think is one of the best management teams in retail to our analysts and investors, but also to lay out in a high degree of detail how we think we can win not only in 2016, but over the next two to three years and while we believe that we have some key strategic initiatives that will allow us to be a much better retailer and to be able to take market share and drive profitability in this very dynamic retail environment.”

Edward Record

Run a lower margin in dot com

“Sure. So the first is obviously we run lower margin in dot-com. The actual margin on the product is roughly equal to our brick-and-mortar. But when you put in shipping, it has a negative impact and as we continue to drive dot-com business significantly faster than our brick-and-mortar business, we’re seeing a mix impact there. We don’t think it significant moving forward. But it is there, and I think our retailers continue to experience that. From an EBITDA margin standpoint, fortunately, our dot-com business is profitable. So we feel really good about that. And so as we continue to grow that, we don’t expect it to be terribly dilutive to our EBITDA margins as they continue to improve as well. So we are profitable there and we think we can continue to drive our EBITDA goals while driving dot-com sales.”