Big, New Ideas from J. C. Penney - Analyst Blog
January 27 2012 - 11:18AM
Zacks
Radical ideas are flourishing at J. C. Penney Company
Inc. (JCP), a leading retailer of apparel and footwear,
accessories, fashion jewelry, beauty products and home furnishings,
as the company recently announced a string of strategic measures to
enhance shareholder’s value in the coming four years.
New pricing strategy, fresh logo, strategic merchandise
initiatives, reduction in costs, enhancement of shopping experience
and customers shopping at their own terms -- you name it, Ron
Johnson’s (Chief Executive Officer of the company) turnaround
blueprint has it all. In short, the company is transforming the way
it operates.
That being said, let's elaborate a bit more on the initiatives
to get a clear picture of what is on the palate.
Pricing is the Key
Calling it ‘Fair and Square,’ jcpenney (the new way of referring
it) came up with a new pricing strategy that is segmented into
three types of prices – Everyday, Month-Long Values and Best
Prices.
The new pricing strategy aimed at keeping the prices low, will
also allow the company to introduce new merchandises regularly.
Moreover, as an extra topping, jcpenney will come up with 12 unique
and exciting monthly promotional events every year to provide
better value to the shoppers.
Further, to enrich the shopping experience, jcpenney will
introduce around 80 to 100 mini brand shops in its stores.
So Much in No Time
With a Herculean task at hand, the company is in no mood to
waste any more time. The transformation activities are slated to
start right from February 1, 2012, with the implementation of its
fresh logo, new pricing strategy and monthly cadence.
Moreover, from August 2012, jcpenney will adopt month-by-month,
shop-by-shop strategy to modernize all stores with latest and
unique assortments. The company said that all the stores will
undergo complete transformation by the end of 2015.
Self Funding for the Change
Shifting focus from stores to financials, jcpenney’s COO Mike
Kramer disclosed the long-term financial outlook. The company plans
to fund the entire transformation activities through its cash from
operations. To start with, the company will incur $800 million in
capital expenditures in fiscal 2012 to enrich the shopping
experience of buyers and to establish the company's new in-store
shops.
Shaving off Costs
To lower the competitive pressures from its peers like
Kohl's Corporation (KSS) and Macy's
Inc (M), the company aims to reduce costs by $900 million
in the first couple of years of its transformation, resulting in
lowering the expenses below 30% of sales. Moreover, the company
targets expenses to be 27% of sales by the end of the
transformation process.
Speaking specifically, jcpenney will abridge significant amount
of costs from stores and advertising and from operations at its
home office.
Forecast Above Consensus
Management expects fiscal 2012 earnings to meet or exceed fiscal
2010 earnings per share of $2.16. The current Zacks Consensus
Estimate for fiscal 2012 is $1.62 per share.
However, on a reported basis, including one-time items, jcpenney
forecasts earnings of $1.59 per share.
Summing Up
Through its bold and strategic modifications, the company aims
to simplify the operational structure, which will supplement it to
generate positive earnings growth and boost shareholder’s
value.
Moreover, the transformation is expected to augment sales and
enhance productivity at stores, which in-turn will lead to strong
margin expansion.
The company will not come up with quarterly sales or earnings
guidance, and will no longer provide monthly same store sales
results.
Currently, J. C. Penney retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Moreover, considering the
company’s fundamentals, we have a long-term Neutral
recommendation.
PENNEY (JC) INC (JCP): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
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