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Facing a decline in brick-and-mortar sales, venerable retailer J.C. Penney is closing the doors to 130 to 140 stores in the coming months. One might think that the brand, which has endured very difficult fiscal times in recent years, is on the way out?
J.C. Penney CEO Marvin R. Ellison had other thoughts during the company’s recent fourth-quarter earnings call.
“Back in 2013, the conventional wisdom was that J.C. Penney would not survive as a company,” Ellison said. “As some of you may remember, at that time the company had a net loss of nearly $1.3 billion, a loss per share of $5.13 per share, a negative EBITDA of over $600 million and a debt-to-EBITDA ratio I described as infinity because we had $5 billion of debt and negative EBITDA. But, through the hard work of many men and women that I’m pleased to represent, the company ended 2016 with an EBITDA exceeding $1 billion, delivered positive net income for the first time since 2010, and a debt-to-EBITDA ratio of 3.7 times with a forecast to be approximately three times in 2017.”
Although Ellison admits “there is much work that remains to be done,” he is proud to say that the hard work of the J.C. Penney team “represents one of the greatest financial turnarounds in retail history.”
Fourth-quarter results included positive comp performance achieved in the critical six weeks of the holiday selling season.
“Even with the tough starts in November, our new growth initiatives delivered another quarter of strong performance, particularly Appliances, Sephora, Salon, Fine Jewelry, and Toys,” Ellison said. “Toys is another great example of the power of listening to our customer and adding categories she is asking for that will enable us to drive our revenue per customer initiative. We had toys in our assortment this holiday season for the first time in many years and the response was excellent. Based on these results, we'll continue to offer toys in 100 stores during the first half of 2017 and we’ll significantly expand the toy assortment in all stores for back-to-school this year.”
While all the company’s growth initiatives continue to perform well, Ellison is “exceptionally pleased” with the performance of its more than 500 new appliance showrooms, which continue to drive increased sales and gross margin dollar productivity.
J.C. Penney’s online business remains strong and delivered double-digit growth for both the quarter and the full-year.
“We remain intently focused on improving our women’s assortment and we implemented operational and leadership changes as we moved into the new year,” Ellison added. “Store gross margin was negatively impacted by the actions we took in the quarter with couponing and increased promotional activity. Although I believe that it’s important to be nimble and to quickly react to competition and market dynamics to drive sales, candidly, many of the Q4 decisions we made diluted gross margin while providing limited top-line sales. In retrospect, these were poor decisions that will not be repeated in the future.”
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