For J.C. Penney CEO Marvin Ellison, brand transformation plans are headed in the right direction, accompanied by enhanced customer engagement and customer loyalty. But, he’s clearly not satisfied.
“For the third quarter, we exceeded expectations on all key metrics,” Ellison said during Friday’s third-quarter earnings conference call, according to Seeking Alpha. “Comparable store sales were up 6.4% in the quarter. Gross margin improved 70 basis points on top of a 710 basis point improvement in the third quarter last year to 37.3% for the quarter. Although I am pleased with the hard work and execution of the team in the third quarter, we are not satisfied. We have heightened internal awareness that we can and will become a better company. We recognize that there are still opportunities to improve our assortment planning and localization, enhance our focus on expense management, fine tune our 1-to-1 marketing, and become a more operationally efficient retailer. And while it is evident that J.C. Penney took market share during this very competitive third quarter, we are intensifying our focus and we'll relentlessly pursue our goal to become a world-class retailer.”
The third quarter was clearly challenging from a macro perspective, Ellison explained, but J.C. Penney focuses on “controlling what we control and this focus is represented by our ability to grow sales by 6.4% in the face of unprecedented warm temperatures, while improving gross margin by 70 basis points and earnings by 57%.”
All of J.C. Penney’s merchandising divisions had positive sales comps during the third quarter, led by men’s apparel, Home, Sephora, footwear, and handbags. Ellison is thrilled by Sephora’s ongoing stellar performance and envisions an even bigger future.
“Sephora continues to perform exceedingly well and Sephora, not only drives traffic and sales to J.C. Penney, it serves as a point of differentiation that cannot be easily replicated in our industry,” he said. “Sephora attracts a younger demographic to J.C. Penney and gives us an opportunity to expand our brick-and-mortar and digital offering to this all-important Millennial customer. We have a great partnership with Sephora and look forward to a bright and rewarding future. We will accelerate our growth of Sephora inside J.C. Penney locations. In the third quarter, we opened five more Sephora locations, bringing our total openings in 2015 to 28 and the total number of Sephora locations inside J.C. Penney to 519.”
What’s more, Ellison said the company has learned that Sephora is a strategy that works in all types of markets.
“Initially, the thought was that this was a large market initiative,” he explained. “But what we’re finding out is that when you put Sephora in a rural market, it has a significant impact to the business as well. And one of our largest Sephora openings on record is in Vienna, West Virginia, small market, great store for us and is even better now with the presence of Sephora. So, we're learning a lot. The accelerated growth of Sephora will allow us to take advantage of more of those unique demographics. But again, we’re very pleased and we are excited about the future possibilities.”
During the third quarter, the company saw dramatic improvement in its mobile app.
“We began to test a Buy Online Pickup In-Store same day in a few markets and we are very excited with the early results and the future possibilities of these initiatives,” Ellison said. “Our online performance improved sequentially versus the second quarter. It’s also very clear to us that our efforts to improve omnichannel functionality, while expanding our online assortment, are key to our future. It is our belief that as we grow our private brands penetration and position these goods online, we will grow our top-line, protect our bottom-line, and have differentiation from pure play, ecommerce competition. And our final strategic priority is increasing revenue per customer. And as I’ve said many times, we have approximately the same number of active customers today as we did in 2011. However, there is an increased opportunity to grow frequency and the amount they spent on every transaction.”