JCP 4Q13 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Two of three phases of the turnaround are apparently complete

“We also realized this turnaround would come in three phases, the immediate stabilization phase, followed by a phase rebuilding and then the go forward phase positioned JCPenney for long-term growth. Over the last 10 months, we completed the first two phases of our turnaround in a very tough and highly competitive environment”

Gross margins hit by restructuring still

“gross margins in the fourth quarter were negatively impacted by our strategic decision to discontinue several brands that were not part of the company’s go-forward merchandising strategy.”

Not quantifying how much just “significant” improvement

“Having taking the hit to our margins in the fourth quarter, we do not anticipate a negative impact in 2014 first quarter margins associated with these discontinued brands. Looking ahead, we anticipate further improvement in gross margin for the first quarter as well as significant improvement for the full year 2014.”

Closing 33 stores and opening 1 new one

“closing 33 underperforming stores across the country. The stores will be closed by the beginning of May of this year…Meanwhile we are excited to be moving forward with our plans to open new store location this fall at the Gateway II development in Brooklyn, New York. ”

Traffic outperforming the industry

“while still negative traffic has outpaced the industry for the last four months as a result of our traffic driving promotions and early successes of our marketing strategy.”

Regular merchandise margin running above 2011 levels

“is important to note that our merchandise margin on our regular and promotional business is running ahead of the margin was generated on those goods in 2011 for both, the fourth quarter as well as the full year.”

Inventories higher than guidance, but have an excuse for that

“Our merchandise inventory is $2,935 million. This is above our previous guidance, primarily based on the timing of merchandise receipts taken in January on go-forward product that carries little markdown risks.”

Free cash flow visibility down the road?

“I would say, that what we mentioned was that we felt that we would have the availability of excess of $2 billion, as we said, this year, which imply that we have visibility for free cash flow going forward.”

Doing better than peers on getting traffic into store

“Our experience versus the industry based on the industry information we have from ShopperTrak and so forth, we ran about 900 basis points favorable to the industry traffic during the fourth quarter”

Trough cash of $1 B

“the cash balance in the $2 billion that we have today is $1.5 billion, so we look across the year and get to the trough, what we said is there would be in excess of $1 billion.”

We don’t think we’ll burn a material amount of cash in 2014

“There has been a lot of discussion that’s out about the company’s, burning $1 billion-plus in the cash and that certainly is not in our plans, and that’s not something that we would expect to happen, so we wanted to give folks some level of comfort that says, we do see a path forward to generating free cash flow and we shouldn’t expect the liquidity situation where the company is today and where we would expect it to be at the end of next year given everything that we have access to be vastly different. We do not have any material asset sales assumed in that $2 billion.”

We are back to a normalized way of running the business

“I would just say as we look at inventory for 2014, we are back to a normalized way of running the business, so obviously the inventory fluctuates based on these most promotional activity and we expect to get back to the normal proportion of clearance versus right price and promotional selling, so it is not remarkable compared to what we were seeing in 2010 and 2011.”

Claiming that they missed their GM guidance because they moved past the rebuilding phase

“We decided after we had given the guidance that as we thought about the go-forward phase, if we really want to finish off the rebuilding phase, let’s put behind us the things that the customer really doesn’t expect to see in JCPenney.”

We think we’ll be cash flow postive-ish in 2014

“We anticipate to complete the turnaround in 2014, and if we completed well, we would [see] free cash flow positive. I think it is too early to be very, very specific, but I think the liquidity guidance we gave you gives you the comfort that we are not burning cash in the process of finishing the turnaround.”

Not anticipating further store closures at this time

“we are pretty happy with the portfolio we have now. We constantly look at it, but I would not expect for us to have any big announcements, until next January if there are”

Disciplined progress

“no one wants to sit down and order in 10% or 20% more merchandise hoping somebody will come. Turnaround is about disciplined progressive improvement and that’s what we call the go forward base.”

Ready to focus on operations rather than cash burn

“As we go throughout the year we will make all the necessary adjustments to move the business forward and did not believe that liquidity and cash burn is something that needs to the as top of mind as it has been and we need to focus more on the day-to-day operating results of the business.”

We did make msitakes

“fair to say that no retailers probably gone through the trauma, of potentially turning around and going the other direction and expecting it to be seamless, okay, so we in fact did make mistakes.”

We didn’t give merchandise away in 4Q

“I think that the rumor that we somehow gave the goods a way during the fourth quarter that we over promoted, I am very pleased to say our forecasting in terms of how we saw holiday, we ran the promotion we planned to run. We ran them effectively and came out with positive”