JC Penney 4Q15 Earnings Call Notes

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J. C. Penney (JCP) Marvin R. Ellison on Q4 2015 Results

4.1% comp

“Comparable sales were up 4.1% in the quarter and accelerated to a two-year stack of 8.5%. In fact, this represents our ninth consecutive quarter of growth, when you take into account that our flat comp from Q3 of last year was positive.”

Regaining market share lost form 2011 through 2013

“we’re regaining market share from that was lost from 2011 through 2013. Our intense focus on value is bringing these customers back to JCPenney.”

Have invested in better data processes

“And fifth, we’re using data to our advantage. Although many results will cite big data as a growth vehicle, I would argue that no modern retailer was as far behind with using data as JCPenney between 2011 and 2014. In the first half of 2015: our store assortments and pricing were not localized; our credit penetration was at an industry low; and our marketing strategy was outdated, which resulted in a low return on ad spend. Therefore, we recruited talented leaders in 2015 and began taking steps in the fall season to modernize our approach to customer and pricing data.”

Mid tier consumer has continued growth possibilities

“Before discussing 2016, I’d like to take a moment to discuss the moderate and mid-tier consumer. This is the U.S. consumer with a household income of approximately $60,000 per year, and a very important customer to JCPenney. Contrary to some of the negative macro data that’s been discussed in the marketplace, our data shows that this mid-tier consumer has continued growth possibilities in 2016.”

In the process of localization

“we are in the early stages of what I call localization, from a true assortment plan that is customized from a pricing and from a locale. We put some structure in place. We have leaders on board that’s kind of been there, done it before, that will work for our existing team.’

Digital is more efficient way to communicate with customers

“Mary Beth West and her team have done a really nice job of taking us from a more traditional, not very modern, view of how we market and talk to customers to shifting to more one-to-one communication with more digital advertising, more focus on social media, paid search, direct mail, et cetera. And, as we all know, that a more efficient way to communicate and it’s less costly than traditional print or TV.”

Price competition online is very competitive

“I think you are very well aware that the most aggressive pricing environment in retail exists online, because of all the dynamic price scraping that exists and the numerous times, specifically pure-play e-commerce sites can change prices throughout the day. ”

We think private brands gives us an advantage online

“The good news for us is that, as we talk about private brands and the importance of private brands, we believe that it gives us a tremendous advantage of going up against pure-play e-commerce competition because we are going to be exclusive sellers of certain categories. And as we ramp that up, and we are aggressive online, we’re not going to face the same pricing pressure that other retailers will face. So we’re excited about it. We have a lot of work to do, and we’re going to be really focused on that.”

Edward J. Record – Chief Financial Officer & Executive Vice President

Don’t need to pay Visa or Mastercard for our credit customer

“Credit is a huge driver of both profitability and sales for us. As I mentioned, our credit customer spends about two and a half times more than our non-credit customer. They attrite half as much. They like us twice as much as the non-credit customer. And obviously, we get revenue from it and we don’t have to pay Visa or MasterCard for that transaction. So it is really a win-win-win for us, so we continue to be focused on driving our penetration. We know we lag the industry. We’re slightly under 40% and the industry is high 40%s to low 50%s, depending on who you want to benchmark.”