JC Penney 2Q16 Earnings Call Notes

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.”

Nordstrom 2Q16 Earnings Call Notes

Nordstrom (JWN) Q2 2016 Results

Blake W. Nordstrom – Co-President & Director

Made substantial progress bringing inventory down

“Thank you and good afternoon. Over the past several quarters, our team has been actively addressing our inventory, expense, and capital as we align to current sales trends. In the second quarter, the team made substantial progress by bringing down inventory in line with sales.”

Best inventory positions we’ve been in

“And I think, overall, the most important thing is, whether it’s the Rack or our stores, we’re in one of the best inventory positions we’ve been in, in many years. We’re able to respond to the customer, partner with our vendors and have good flow, and a lot of good things come from that.”

Michael G. Koppel – Chief Financial Officer & Executive Vice President

No big news traffic wise

“Now, well, you know we really don’t track traffic within our stores. I would say, generally speaking, it was roughly – for the quarter, roughly equivalent to what it has been. I don’t think there was any big news there.”

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Promotional activity has stabilized a bit

“With regards to price matching – this is Pete – our practices remain the same. But I think it’s fair to say that the promotional activity has stabilized a bit here in the last quarter or so. To the point you made, there’s vendors out there choosing to participate in different ways than they may have in the past with our competitors. What we’re trying to do is put ourselves in a real favorable position with vendors to be the retailer of choice for them, and what that means for most of the vendors we deal with is our desire, strong desire, to sell at full-price. And so, we focus a lot on flow and newness and all that.”

There’s so much more available online than at any given store

“And I think one of the things that happens slightly on the downside of that is the context it creates for some stores. There’s so much more available online than there might be at any given store. So I think our ongoing challenge is to do the best we can to make sure each store has the best possible product offer that it has, and the kind of stuff that customers ask about are the things that are hard to get. And they ask for that everywhere. And that has to do with some of the limited distribution stuff that’s obvious – that’s usually connected to designer or what have you.”

Kohl’s 2Q16 Earnings Call Notes

Kohl’s (KSS) Kevin Mansell on Q2 2016 Results – Earnings Call Transcript

2Q below expectations but July strong

The second quarter was below our expectations on the sales line. May was the weakest month of the quarter. June was aided by warm weather early in the month, along with favorable calendar shifts, with Memorial Day falling in fiscal June and Fourth of July moving to fiscal July. July finished very strong, as we moved our credit event a week closer to back-to-school, and those businesses, especially Juniors, Young Men’s and Girls, performed extremely well. Our seasonal businesses in the quarter followed a similar trajectory as the total company sales.

Did a good job of managing inventory

We did a very good job of managing our inventory, gross margin and expenses during the quarter. Our gross margin rate increase of 53 basis points was better than our plan, due to both better initial markup and lower promotional markdowns. Our inventory per store is now down 6%, in line with our expectation

More active space

Yes, on the active wellness area, I think the way we’re looking at that, Neely, is that the business is obviously growing faster than the overall apparel business. Certainly if you look at it industrywide, the rate of growth is slowing just because the denominator is getting bigger, the business is bigger and bigger and it’s certainly a lot bigger for us, but it continues to grow a lot faster than the rest of the store. And so active and wellness is going to be getting more space. It’s got more inventory dedicated to it in our stores. And we’re going to be going through this holiday a pretty major transformation of the presentation and space allocation and fixtures in our active and wellness areas in the stores to prepare for the Under Armour arrival that will include updating and amplifying the rest of active and wellness in addition

No news in terms of consumer behavior

In terms of consumer behavior, I think there isn’t any new news there. We had modest improvement in our business and in traffic, but it’s still negative. So until such time as we can implement these merchandising and marketing changes, we don’t want to plan for traffic to turn positive. And so, as he said earlier in the call, we’re planning traffic to be lower than sales in the near-term. In terms of competition, I think Wes also addressed that a little bit earlier, we continue to see and we expect that both Amazon and, generally, off-price space is gaining share. And so to the extent we can, we are really focused on making changes to our business model that would just allow us to compete more effectively. And one of the things that we’re probably doing and have a stronger point of view about is the importance of our stores to do that.

Wesley S. McDonald – Senior Executive Vice President & Chief Financial Officer

Comps decreased but significantly improved

Comp sales decreased 1.8% for the quarter, below our expectations, but significantly improved over first quarter results. Transactions per store were down 4.8% for the quarter. Average transaction value increased 300 basis points, comprised of a 310 basis points increase in units per transaction and a 10 basis point decrease in average unit retail. From a line of business perspective, Men’s was the strongest category, while Home was the weakest. All other businesses were generally consistent with the company average. On a regional basis, the Southeast, Midwest and West were strongest. The Northeast, South Central and Mid-Atlantic were below the company. Kevin will provide additional details on sales in his prepared remarks.

Going to wait for more data before closing stores

And then, from a store closure perspective, it’s hard to predict the future. If we can start to drive top-line sales more consistently, that should make the stores better. We mentioned earlier, I don’t see any stores that we’re going to close next year. When we get a better idea of what the retained sales are going to be from the 18 that we just closed in June, that will tell us what our projections are going forward and make us feel better about either we’d be more aggressive on closing stores or more conservative, once we get that information.

Macys 2Q16 Earnings Call Notes

Macy’s (M) Q2 2016 Results – Earnings Call Transcript

Karen M. Hoguet – Chief Financial Officer

Sales down 4% but better than 1Q comp

Sales in the second quarter were $5.866 billion, down 4% from last year. On a comp owned-plus-licensed basis, sales were down 2%. This compares to the 5.6% drop we experienced in the first quarter. On a two-year basis, the first quarter was down 2.9% per year and the second quarter down 1.7%, representing a 1.2-point improvement in this trend. Both Macy’s and Bloomingdale’s experienced improvement in the second quarter.

Four factors contributed to the trend change: weather, better international, sales generating strategies and promotional events

We would cite four key factors contributing to this trend change. One, weather has been hot this summer and has contributed to the strong apparel sales and perhaps more shopping in general as a way to avoid the heat.
Two, international credit card sales were down 12% in the second quarter. This compares to a 20% drop in the first quarter. While this still negatively impacted our comp sales by approximately 60 basis points in the second quarter, it had less of an impact than it has had in recent quarters. As a result, our sales trend in the major tourist stores improved for both Macy’s and Bloomingdale’s in the quarter. Three, many of our sales-generating strategies are beginning to kick in. The investment in staffing in our best stores, our fine jewelry strategy, the Last Act clearance strategy, and home store improvements, this is very encouraging. And four, a few strong promotional events and sharper pricing helped in the quarter as well, and we were able to structure these events to both drive sales and preserve our gross margin rate.

Apparel was strong

The families of business that were strongest in the quarter included all of apparel, men’s, women’s, and kids’, as well as fine jewelry, shoes, fragrances, textiles, and housewares. Handbags and fashion jewelry and watches continued to be weak.

Strong back to school season

We are encouraged by the start of the back-to-school season. We are seeing strength in all categories, but are most excited by the strong trend in denim.

Closing stores

We decided to be proactive and to close a larger number of stores this year. This will bring the shopping experience to a consistently higher level and concentrates Macy’s stores in locations with better potential. We believe we can benefit from right-sizing the company. This will force us to make necessary overhead reductions to preserve profitability and ongoing cash flow. And while it will shrink the company somewhat, these closings will positively impact our return on invested capital and help us to accelerate our growth.

Believe they can retain sales

This potential sales loss is lower than the projected volume of these 100 roughly stores due to our ability to retain some of the sales in other stores as well as on macys.com. With the stores we’ve closed in recent years, we have greatly improved our ability to retain sales both through new targeted marketing efforts and by trying to make sure that we add specific merchandise, categories, and vendors that is in stores that are being closed into stores that are nearby.

“shrink to grow”

One of the reasons we feel it is right to shrink to grow is the success we’re beginning to have in our top doors. Our work with our top 150 doors gives us confidence that we can accelerate our growth in these strategically critical locations. We want to focus our financial resources and our talent to make this happen, along with fueling our digital growth.

There’s no doubt that retail is changing

Retailing is changing, there’s no doubt about it. Our company is committed to being tomorrow’s leader in omni-channel retailing. We will strike the right balance between stores and digital. And the closing of 100 locations will get us to where we think we need to be, all while maintaining a significant physical presence in virtually every major market across America.

Seeing some increase in credit card delinquencies

No, remember, we had expected credit income to be below last year when we started the year, so this is not a surprising trend. We are seeing some increase in delinquencies, as we had said. But remember, part of that is because we’re also trying to grow the portfolio. So there’s nothing concerning happening in the portfolio today, and it is happening as we had anticipated.

JC Penney at Piper Jaffray Conference Notes

Marvin Ellison – CEO

The consumer is in pretty positive shape

” what we’ve determined pretty consistently is that the consumer is in a really positive shape from a financial standpoint. The consumer tells us that their wages are up, their job stability is better than it’s been in many years. They have price appreciation in their home. They have more money in their savings accounts than they have had quite a while and energy prices although up are still down relative to last year. So overall, the consumer is telling us, they feel really good about their personal economic position.”

Consumers are also telling us that they are pulling back on spending because of some of the uncertainty that may exist

“What they’re telling us is that they are pulling back a little bit on apparel related spend because they are spending more on experiences and entertainment but also because of some of the uncertainty that may exist in the broader macro that they can’t predict.”

The JC Penney of 2010 will not win in 2020

“one thing we’re pretty sure of the J.C. Penney of 2010 will not win in 2020. That business model can’t work for the future. There are elements of that business model we are very confident that can work and specifically that element is private brands. It’s a huge competitive advantage that we have as a Company?”

Online is only a modern view of what catalogue was 50 years ago

” we had to create a true omni-channel experience. I know the omni-channel term is overly used in retail but for me it’s very appropriate because JCPenney was once a dominant catalogue retailer. So, you could argue that JCPenney was one of the first omni-channel retailers between brick-and-mortar and catalogue. And online is only a very sophisticated modern view of what the catalogue was 50 years ago. And that was totally lost in the leadership transition and change in philosophy.”

JC Penney 1Q16 Earnings Call Notes

Marvin R. Ellison – Chief Executive Officer & Director

Disappointed in our results

” The first quarter was clearly challenging from a top line perspective, and we’re disappointed in our results relative to our own expectations. As you’ve heard throughout the week from other retailers, top line sales were negatively impacted by many factors outside of our control”

Consumer is spending more dollars on experiences and beautifying their home

“And candidly, our over-reliance on apparel hurt us in times during the first quarter, when weather patterns were not conducive to apparel sales. And the consumer was simply spending their hard-earned dollars on experiences, entertainment and to beautify their home. While apparel will always be important to JCPenney, we’ve conducted a detailed review of our customer current and future shopping patterns, and we’ll start to strategically shift our merchandising mix to sell more products and services that correlate to where customers are spending the greater percent of their dollars.”

Trend got a little bit better in the end of April

“Thanks. It’s very, very basic approach. I mean, we’re taking a hard look at the trend. Obviously, as we mentioned, the first part of April was very challenging, but we had positive comps towards the end of the month, and we had a positive selling environment for that whole Mother’s Day selling period. So we left the month of April and entered (27:35) the month of May with some confidence. ”

We feel like we outperformed our peers in the tough environment

“As we listened to our peers in the competitive space, we actually feel a little better that we really actually outperformed based on the headwinds that we were up against. So I would say, there are always things that we look back on that we could have done differently as it relates to timing of promotions, as it relates to the efficiency of our execution”

Customers spending on entertainment, experiences

“when we look at our categories, and we look at what customers are spending, you’ve heard the data all week, it’s entertainment, it’s experiences, it’s home beautification, and apparel was down because of the share of wallet with other places.”

Pleased with the Mother’s Day selling season

“We were pleased with the Mother’s Day selling season. And that’s something that actually gave us confidence, at least coming out of the first quarter, to hold our sales guidance for the year. We continue to work each day, each week. But for that entire selling season, Mother’s Day, we feel good about the progress we made.”

Nordstrom 1Q16 Earnings Call Notes

Blake W. Nordstrom – Co-President & Director

Comps decreased, inventories ended too high

” For the first quarter, we had a sales increase of 2.5% and a comp decrease of 1.7%, which fell short of our plan for a low-single-digit increase. Despite our focused efforts to manage through this current environment, we are not satisfied with our results. Given these sales trends, our inventories were too high, which puts pressure on our margins and necessitates additional markdowns.”

The promotional environment is very noisy

“Where we’re seeing a big miss is in our clearance and promo – promotional business. So what we take away from that is, number one, the clearance and promotional environment is really noisy. There’s a lot of excess product out in the marketplace. It’s certainly easy to shop online. There’s some heavy, heavy discounting going on. And we’re seeing that effect in our business.”

Price transparency is about customer respect. There’s no regionality online

“On price matching, it’s – the cause and effect is a little clearer online in our stores, the price transparency that the Internet provides. And we have been more purposeful for, I’d say, the last couple years of matching price on products online, really for big online retailers, wherever they may be because there is no regionality to e-commerce. And that has served us well in gaining trust with the customers. We do not look to price matching or price promotion in any way as being a big strategic lever and a way of driving our top line. We look at price matching as a customer respect and a customer trust issue; that when a customer comes to us, they know that they’re being treated fairly. And we think the clearest way of doing that and what customers expect is to not pay more for a specific item when they’re shopping with us.”

Michael G. Koppel – Chief Financial Officer & Executive Vice President

Making reductions to 5 year capital plan

Sure, Kim. Yeah, thank you for your question. I did mention in our comments that we are going through a thorough review of the capital plan which will result in a reduction of that plan. We haven’t articulated that specifically yet. We’re reviewing it with our board next week.

We continue to see a transformation in our business model

” clearly, as we’ve been talking for the last couple of years, we’re seeing a transformation in our business model. The e-commerce element continues to grow at a good pace and the impact of technology in digital on the customer experience continues to accelerate. So that would imply our commitment to technology and fulfillment and the things that continue to support that business is going to be something we’re going to stay very strong on. On the other side, we continue to see traffic falling off in malls. And how we think about our store-based asset will probably require some level of adjustment.”

James F. Nordstrom – Executive Vice President and President, Stores

Mall traffic down obviously hurts us

Yeah, Brian, this is Jamie. I think it’s been pretty well documented out there that mall traffic overall has been soft over the last probably couple quarters – we’ve seen some data recently over the last month or two that it was down, approaching double-digits. And we notice that. We are in – we’re primarily in malls.”

Lower mall traffic has affected clearance more than full price

And when we see mall traffic go down, it hurts us. And we can see that in certain areas of our business. Clearance sales is a good example of that. While our full-price, regular-price sales have been hanging in there, our clearance sales over the last quarter or two have really been down.

Kohls 1Q16 Earnings Call Notes

Kevin Mansell – Chairman, President & Chief Executive Officer

Further deterioration in April

“Thanks, Wes. The first quarter was well below our expectations in the sales line as a very strong start to the quarter in February was overcome by softer-than-expected pre-Easter business and then a further deterioration in April versus our plans. Our seasonal businesses followed a similar trajectory as the total company sales trend.”

We saw a similar pattern to Macys

“Much like Macy’s who reported yesterday, we had a very strong February. It was the first positive comp we’ve run since 2011, and we saw a pretty dramatic drop off the same timing they mentioned. So we’ll have to see if that drop-off is a macro-induced thing or if it’s company specific. We will know a lot more as more companies report later this week. But it will get warm. We have shorts to sell and we’re in a good inventory position. So I think at some point, people will need those clothes and will come buy them”

We’re trying to figure out whether this is macro or company specific

“So on the – one of the things we tried to make clear in the call, to be honest with you, Paul, is that right now I think we’re having a hard time determining how much of our underperformance was more related to macro factors, which you’re right, would have more implication on future performance and how much is related more to our company-specific factors which could have to do with inventory carryover, could have to do with marketing and effectiveness, particularly on events at critical times; could have to do with the transition because of weather, particularly in the Northeast and Midwest.”

Wesley S. McDonald – CFO, Senior Executive VP & Head-Investor Relations

Transactions per store down 4.8%

“Comp sales decreased 3.9% for the quarter. Transactions per store were down 4.8% for the quarter. Average transaction value increased 90 basis points comprised of 190 basis point increase in units per transaction and 100 basis points decrease in average unit retail.”

Capex is $825m this year

“Well, I think the number one priority for cash is to fund our growth so we’ll continue to invest in digital technologies to drive that business. So our CapEx for this year is $825 million. ”

Shift to digital advertising has helped drive digital sales

“Yeah, I mean, you’ve got four or five data points out there from people that have already reported. I be shocked if not everybody had some kind of a down-step change from fourth quarter to first quarter, the absolute value of which depends on the relative strength of the sector that they’re in and from a retail perspective. But I think one of the things we are in the process of looking at is we have made a pretty dramatic shift from print and direct mail into digital. That’s definitely helped drive the digital business very well.”

E-comm is not as profitable

“You are pretty new to the story so I’ve been an early I guess realist on e-comm versus brick-and-mortar. It’s not as profitable and I think everybody is coming around to that. Having said that, I think we missed our plan slightly in digital, it was only on a couple of days, so I don’t think there’s a material slowdown. The same things that affect traffic in the stores, you don’t need shorts you’re not going to buy them online just because it’s easier, and can ship to your house for free. You will buy it when you need it. ”

May be pulling back digital advertising a bit

“I think one of the things we are in the process of looking at is we have made a pretty dramatic shift from print and direct mail into digital. That’s definitely helped drive the digital business very well. We may need to rethink that mix to reach some more of our traditional customers that get their information from print.”

“We have a team of our best and brightest trying to investigate everything right now. So at a high level, I would think we’d be trying to test a little bit more weight into print and direct mail and maybe pull back from digital a little bit.”

Nordstrom 4Q15 Earnings Call Notes

Blake W. Nordstrom – Co-President & Director

Michael G. Koppel – Chief Financial Officer & Executive Vice President

30% of our business will probably be done online by the end of this decade

“clearly, we’re seeing a, what has been a very noticeable change in our business model. I think one of our slides indicated by the end of this decade that we’re going to have a large proportion of our business about 30% being done online. That’s all the way from 5% that it was back in 2005 and that is a model that behaves enormously different than the mall-based model.
And so we have a lot to learn about that and we have to keep our lens on as it relates to how the customer sees us and how the customer wants to be served, but at the same time, we have to do it effectively. ”

Learned that we could be more productive with technology investment capital

“I think part of what we’ve learned along that journey is that we could likely be more productive with that capital.”…”In terms of the returns of the past, we’ve had some projects that have delivered some great returns and some that haven’t. That, by the way, is part of the business. It’s a test and learn and iterate business. But that being said, as I think over the last several years, we’ve learned that we can likely do it better. And at this point, we don’t feel that the moderation in investment is going to limit our growth in that channel.”

No sign of deterioration in the credit portfolio

“In terms of the health of the Credit portfolio, it continues to be very strong. We’re not seeing any deterioration in terms of the quality of the portfolio, the timeliness of payments, et cetera.”

Looking to understand how to get more efficient

“we need to continue to view the customer experience not just by channel but across the enterprise, and understanding how we can serve the customer on an enterprise level. And there’s a number of things we can do. Currently today, we fulfill out of multiple locations and are there opportunities for us to get more efficient at that? That creates not only additional labor cost but it creates additional shipping cost because you’re shipping multiple items per an order. We’re also looking at how spread out we want our assortment to be, because the more lower-price items we have in it, the less unit profitability we gain.”

Peter E. Nordstrom – Director, Executive VP & President-Merchandising

Other people’s inventory problems spill over to us because we have to be competitive on price

“When business is bad, it accelerates that clearance part of it, but the part that we’re talking about is promotional activity, where a retailer will take everything that they have to offer, something that’s a week old in the inventory and something that’s eight weeks old in the inventory and mark everything down. And that’s what really erodes the margins. For us, we don’t generate any of those events ourselves, but we have to be competitive for price. So if it’s a price that’s available for the customer and for all customers, to maintain integrity and trust and confidence of our customers, we’re going to match that price. So that’s what puts the pressure on us in terms of our promotional activity. ”

We try to focus on the things that we can control rather than the macro

“Some of the stuff is somewhat cyclical. But if we get into a position of trying to rationalize it based on external or macro factors that we can’t control, then that’s not a very good place for us to be. So what we really try to focus on are the things that we can control and that’s delivering great service for customers, having a great relevant experience for them, both online and in stores, seamless integration, new products for them to buy, the excitement of what retailing can provide, And we talk about in terms of marketing, the hopefulness and the cheerfulness of what this is about. “