J.C. Pen­ney to close stores

At least 130 to shut; early re­tire­ments also in the works.

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - In­for­ma­tion for this ar­ti­cle was con­trib­uted by Anne D’Innocenzio of The As­so­ci­ated Press, Maria Halkias of The Dal­las Morn­ing News and Lind­sey Rupp of Bloomberg News.

DAL­LAS — J.C. Pen­ney Co. said Fri­day that it will close 130 to 140 stores as well as two dis­tri­bu­tion cen­ters over the next sev­eral months as it tries to im­prove prof­itabil­ity, join­ing its depart­ment store ri­vals in prun­ing store num­bers be­cause of on­line shop­ping.

The com­pany said it would also ini­ti­ate a vol­un­tary early re­tire­ment pro­gram for about 6,000 el­i­gi­ble em­ploy­ees.

The news came as Pen­ney posted a profit for the fourth quar­ter, com­pared with a loss a year ago. But to­tal sales were down slightly, and a key rev­enue met­ric de­clined a bit as well. The com­pany also is­sued a con­ser­va­tive an­nual fore­cast.

Chief Ex­ec­u­tive Of­fi­cer Marvin El­li­son ac­knowl­edged that Pen­ney wasn’t strate­gic with pro­mo­tions, which hurt profit mar­gins, and said that its level of couponing was “un­healthy.” It plans to use a more data-driven ap­proach to pric­ing this year af­ter test­ing the strat­egy in some cat­e­gories last year.

The tim­ing of the early re­tire­ment of­fer, which is based on age and years with the com­pany, shouldn’t be viewed as some “des­per­a­tion” move, El­li­son said.

“This was done pur­pose­fully. It’s not a co­in­ci­dence or an act of des­per­a­tion. We just posted our first profit in years,” he said in an in­ter­view Fri­day. “We’ve been all about con­trol­ling costs as the home of­fice, but this is more in line with less­en­ing the neg­a­tive im­pact from store clos­ings.”

J.C. Pen­ney’s plan echoes ri­val Macy’s Inc.’s an­nounce­ment last year that it would shut about 100 of its stores to ad­just to a world where con­sumers in­creas­ingly pre­fer shop­ping on­line to vis­it­ing malls. Sales at J.C. Pen­ney, which is still work­ing to re­cover from a dis­as­trous at­tempted rein­ven­tion, are less

than half of their 2002 peak.

J.C. Pen­ney is also still re­cov­er­ing from a cat­a­strophic rein­ven­tion plan un­der a for­mer CEO that sent sales and profits freefalling start­ing in 2012. Since then, it has fo­cused ef­forts on its home area, started sell­ing ma­jor ap­pli­ances again and ex­panded its num­ber of in-store Sephora beauty shops.

While its an­nual sales still shrunk, Pen­ney was able to pull in a $1 mil­lion profit for the full fis­cal year, the first time it earned an an­nual profit since 2010. The stores it is clos­ing rep­re­sent about 13 per­cent to 14 per­cent of its cur­rent store count of about 1,000, but less than 5 per­cent of to­tal an­nual sales. The dis­tri­bu­tion cen­ters are in Lakeland, Fla., and Buena Park, Calif.

A full list of planned store clos­ings will be re­leased in midMarch af­ter stores have been no­ti­fied. Most of the stores are ex­pected to close in the sec­ond quar­ter, or by the end of July.

“With a slimmed- down store port­fo­lio, [J.C. Pen­ney] will be able to fo­cus on mak­ing its re­main­ing stores more of a des­ti­na­tion,” said Neil Saun­ders, man­ag­ing direc­tor of Glob­alData Re­tail. “This is es­sen­tial, as while progress has been made on cat­e­gories like home, other de­part­ments still re­quire at­ten­tion.”

Pen­ney man­aged to out­per­form some of its ri­vals. Kohl’s Corp. re­ported a drop in fis­cal fourth-quar­ter profit as to­tal sales de­clined. Rev­enue at stores opened at least a year dropped 2.2 per­cent. Nord­strom Inc. re­ported a bet­terthan-ex­pected quar­terly profit with help from strong sales on­line and at Nord­strom Rack. But at the Nord­strom brand, com­pa­ra­ble store sales de­creased 2.7 per­cent. Macy’s, the na­tion’s largest depart­ment store chain, says its earn­ings for the quar­ter that in­cludes the Christ­mas pe­riod dropped nearly 13 per­cent, hurt by lower sales, store clo­sures and other costs.

Given the en­vi­ron­ment, Pen­ney wants to be less de­pen­dent on cloth­ing. It’s rolled out ma­jor ap­pli­ances in 500 stores and plans to add 100 more ap­pli­ance show­rooms this year. It has up­dated its beauty sa­lons, now branded Sa­lon by InStyle. It is also beef­ing up its store la­bel brands such as St. John’s Bay. In the fourth quar­ter, top-per­form­ing ar­eas in­cluded home, Sephora, its sa­lon busi­ness and fine jew­elry. Last year, it added 61 Sephora stores for a to­tal of 577. This year, it’s adding 77 more.

The Plano, Texas-based com­pany has also now armed its store as­so­ci­ates with mo­bile de­vices to help check out on­line shop­pers who are pick­ing up or­ders in the store.

El­li­son said the com­pany de­cided that co­or­di­nat­ing a vol­un­tary early re­tire­ment pro­gram with the store clo­sures could lessen the ef­fect on em­ploy­ees. He said the num­ber of full-time work­ers ex­pected to take ad­van­tage of the early re­tire­ment in­cen­tive will far ex­ceed the num­ber of full-time po­si­tions af­fected by the clo­sures.

Pen­ney also em­pha­sized that its stores can be used as lever­age against on­line re­tail­ers, es­pe­cially for pick­ing up on­line or­ders, while many solely on­line com­pa­nies are see­ing dra­mat­i­cally higher ful­fill­ment costs. El­li­son said he was pleased by the dou­ble-digit growth of jcpen­ney.com.

To im­prove mar­gins, Pen­ney Chief Fi­nan­cial Of­fi­cer Ed Record said, Pen­ney has started re­gional pric­ing in 60 stores and so far re­sults are “strong.”

Pen­ney has main­tained the same prices across the U.S., and “maybe it doesn’t make sense to have the same prices in Man­hat­tan as in ru­ral Alabama.” Other depart­ment stores, in­clud­ing Dil­lard’s, use the re­gional pric­ing, charg­ing less in smaller mar­kets for some of the same mer­chan­dise.

For the fis­cal fourth quar­ter, J.C. Pen­ney re­ported net in­come of $192 mil­lion, or 61 cents per share. Earn­ings ex­clud­ing one-time gains and costs was 64 cents per share. An­a­lysts ex­pected 61 cents per share, ac­cord­ing to Fac­tSet.

Rev­enue to­taled $3.96 bil­lion in the pe­riod, down 0.9 per­cent from a year ago. Sales at stores open at least a year, a key gauge of a re­tailer’s health, slipped 0.7 per­cent. This fig­ure ex­cludes re­sults from stores re­cently opened or closed.

Pen­ney ex­pects full-year ad­justed earn­ings of 40 cents to 65 cents per share. An­a­lysts ex­pected 54 cents per share, ac­cord­ing to Fac­tSet. The com­pany fore­cast rev­enue at stores open at least a year to be down 1 per­cent to up 1 per­cent this year.

Shares fell 9 per­cent, or 62 cents, to $6.24 on Fri­day.

Bloomberg News/SAUL MARTINEZ

Shop­pers browse ap­pli­ances at a J.C. Pen­ney Co. store in Gar­den City, N.Y., in this file photo. Pen­ney started sell­ing ma­jor ap­pli­ances again af­ter a failed rein­ven­tion that started in 2012.

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