J.C. Penney Company, Inc. (NYSE:JCP) hosted a conference at Bank of America Merrill Lynch today. The CFO, Ken Hannah spoke about the company’s plan and urged investors to have patience with the transformation started by Ron Johnson. The stock has been under pressure lately and a big hedge fund is shorting the debt. Interestingly, the CFO started off the conference stating that neither Johnson nor himself would be resigning. We have a transcript covering all the CFO’s remarks. We excluded the Q&A. Full transcript below:
Ken Hannah - J.C. Penney Company, Inc. (NYSE:JCP) – CFO
Thanks, Lorraine, and good afternoon, everyone. So all kind of rumors in the marketplace. I can tell you that I am not resigning, Ron is not resigning. In fact, I left my family on spring break this week for my children. I have five of them. They have got a number of their friends, there’s about 30 of us in a house in Destin, I left them this morning to come up here. If I was going to resign, I would have done it last week and not inconveniencedmy family.
But, look, I’m happy to be here. It is no surprise we had a tough year last year and I want to make sure that you guys all understand, Ron and I are not going to go hide. We are going to tell you what we are doing, we are going to tell you what we are learning, and we’re going to stand up and we are going to be held accountable. Okay?
So let’s just talk about a few things. I want to remind folks about some of the accomplishments that we have had in the past year. Despite what was a very, very tough environment inside J.C. Penney Company, Inc. (NYSE:JCP) last year, I think the teams were able to accomplish a lot. We set out on this transformation.
No one said it was going to be easy. When I started with the Company in May, my first couple days was here in New York at our first-quarter earnings. And I saw the reaction to roughly a down 20 top-line. And how many people were disappointed that this 110-year-old Company hadn’t transformed in the first quarter of 2012. And so I realized very, very quickly what I was up against. This is something that — it’s a multiyear transformation and something that is going to take a lot better connection with our customers and a lot more patience by our investors. Okay?
So let’s talk just quickly about what we were able to accomplish. As I said, we launched an entirely new strategy in 2012. We changed everything in the Company but the address. And if you read the papers, you will see that we are sitting on 300 acres of the most sought after land in all of Dallas and if someone wants to pay me a pretty penny for it, I will gladly take our team and put them into something that is sized more appropriately for the business that we have today.
So we went after every non-core asset that we had on the balance sheet and said, how do we make sure we fund this transformation internally?
So we had a lot of things we had done for many years for tax purposes and we were able to go in and monetize about $526 million worth of assets. And there are several hundred million more that we are working on today, all of which were sold at a significant gain. So this isn’t a fire sale, we are not looking to sell our core assets to survive; we are looking to take our non-core assets and use them as a source of funding.
So Ron’s vision to a specialty department store is well underway. We transformed 6 million square feet in 2012. Now to give you an idea, his entire time at Apple, they transformed a little over 2 million square feet. So we were joking that noise you hear next door is a jackhammer. We are probably putting a Joe Fresh shop across the hall here.
So we are very excited about what we are seeing in the productivity of the space where we have done that transformation. We have got a major launch in 681 stores on March 15, that is this week. Joe Fresh will be launching across all 681 stores. And we are very excited about what that is going to mean for the Company.
The business model, I think Mike and Ron had stood up in the initial presentation and talked about the opportunity around expenses, talked about the opportunity around inventory. So we’ve taken out in excess of $900 million of expense and that is looking at every single expense that we have in the Company and understanding not just how to make it better, but how to determine whether it needs to be done at all.
We had a town hall several months ago and I stood up in front of everyone in Plano and I said, I learned something back in 1990 walking through a factory, it was on a manufacturer — manufacturing engineer’s black board and it said, there is nothing as wasteful as doing with the greatest efficiency that which doesn’t need to be done at all. And that has been something that, as I grew up through my time at General Electric, my time with the Boeing Co., my time with Home Depot, it has been something that governs the way I operate every single day.
So when someone comes to my office and says, look, I’m going to reduce this by 4% or 5%. My first question is, why do you have to do it at all? And that is a lot of what we’re trying to do. Even today with taking over $450 million of expense out of our stores, 30% of the hours are still non-selling hours. So everything we do, I ask our team, does this have to do with buying or selling our product? And if not, explain to me why we need to do it.
And, yes, there is compliance and there is controls and there is things like that that we have to make sure we maintain, but we are challenging every single aspect of what we’re trying to do on the expense structure. And so I think there is still opportunity as we go forward. And we’re going to continue to identify those things.
Look, I was at The Home Depot when we dialed back the labor model to the point to where there was two people in