Mike Ullman – J.C. Penney Company, Inc. (NYSE:JCP) – CEO on the conference call this afternoon
Good afternoon and thank you all for joining us on the call today. I am here with our Chief Financial Officer, Ed Record, who joined the Company in March. Glad to be with you and to take you through the first-quarter results and update you on the progress of J.C. Penney Company, Inc. (NYSE:JCP)‘s turnaround. We will also be discussing some of our expectations for the coming quarter and the remainder of the year. And following that, Ed and I will look forward to answering your questions.
As I mentioned during the last quarterly call, the turnaround of JCPenney is taking place in three stages. First, the stabilization phase which we initiated immediately after I returned last April. That was followed by the phase of rebuilding in the third and fourth quarters of last year. And now we are in the third and final stage, which we call the go-forward phase, during which we are positioning J.C. Penney Company, Inc. (NYSE:JCP) for long-term profitable growth.
We completed the first two phases of our turnaround by strengthening our team, stabilizing J.C. Penney Company, Inc. (NYSE:JCP) operationally and financially, and by rebuilding parts of the business that were key to our long-term success. This year we have begun progressing through the go-forward phase and I am pleased to report we are making excellent progress. And I believe the results we announced today demonstrate that case.
During this phase, we are focused on refining our merchandising and marketing strategies and are to steadily grow sales and significantly improve gross margins while continuing to tighten and manage our expenses, all with an eye toward returning to profitable growth.
Our first-quarter results are a positive step in that direction. Despite the unusually challenging, if not unprecedented weather conditions in February and March, we are gratified to have exceeded our sales guidance and delivered a 6.2% same-store sales growth for the quarter or 7.4% growth under the new sales reporting methodology.
In addition, sales improved sequentially in each month of the quarter. Our strongest performance was in April especially during the Easter holiday period which helped to produce our better-than-expected results.
The customer came back to J.C. Penney Company, Inc. (NYSE:JCP) in the first quarter and based on our favorable conversion trends, she likes what she saw. We also delivered gross margin improvement over the first quarter of last year and sequential improvement from the fourth quarter 2013. Gross margin improved 230 basis points to 33.1% of sales when compared to the same quarter last year.
While we are pleased with our gross margin progress this quarter, we recognize there is still a lot of room for improvement at J.C. Penney Company, Inc. (NYSE:JCP). Looking ahead, we anticipate further gross margin expansion in the second quarter.
Expenses at J.C. Penney Company, Inc. (NYSE:JCP)were well-managed during the quarter with J.C. Penney Company, Inc. (NYSE:JCP) SG&A coming in below last year’s levels and better than we had planned. We will continue to tightly manage costs as we institute important disciplines and processes across the stores and the home office. Overall, our first-quarter performance was in line with our plans to grow the business and take back market share from our competitors. And I want to personally thank our 117,000 dedicated associates throughout the organization who delivered these exceptional results and give great customer service every day.
J.C. Penney Company, Inc. (NYSE:JCP) turnaround
With that, I would like to provide an update on the continued progress of our turnaround. On our fourth-quarter call I told you we were focusing on several key priorities including merchandising our stores and dotcom in a way that better engages the customer and is easy and inviting to shop, improving our marketing to reconnect with customers and further enhancing our seamless on the channel customer experience across all channels and devices.
First our merchandising assortments. For the quarter, women’s and men’s apparel, home, and fine jewelry were the Company’s best-performing merchandise divisions. And women’s apparel, casual and career dressing performed especially well which shows our updated merchandising assortments are really resonated with our core customer. We made great strides in ensuring the customer finds what fits and styles she wants from JCPenney’s. Including key private and national brands as well as exclusive brands like Liz Claiborne and Modern Bride.
Private brands such as St. John’s Bay, Worthington, Stafford, J. Ferrar, and Xersion are outperforming. We have a distinct competitive advantage with our in-house design teams who truly understand each private brand, its target customer, lifestyle and price point. This is why our customers are very loyal to these brands. They trust them and will consistently deliver quality fit and exception of value for which they stand.
Private brands are also important to us because they deliver gross margins that are several hundred basis points higher than national brands. Just as importantly however, we are proud to be the best moderate department store to buy key national brands that resonate with our customers.
On that front, we are very encouraged to see continued increases in some of our largest national brands in the first quarter, such as Levi’s, Nike, Carter’s, Izod’s and Van Heusen. We attribute this to the strength of our assortments and the appealing shopping environment we have created around these brands.
During the quarter we successfully relaunched our new home store and it is called Home Collections at JCPenney. As part of the relaunch, we remerchandised the floor to make better use of the space and to conform to the way the customer wants to shop. We also placed a renewed focus on bedding and bath and small electrics as well as decorative accessories. We now offer a range of home merchandise that better fits our customer’s budget and lifestyle.
Finally, we opened 30 new Sephora Inside J.C. Penney Company, Inc. (NYSE:JCP) locations bringing the total to 476. We also expanded eight existing stores of our strongest performing Sephora locations this quarter to increase their footprint inside the store. Our Sephora stores continue to perform exceedingly well.
I would like to thank our merchant of planning allocation teams led by our Chief Merchant Liz Sweney and our Head of Planning and Allocation, Frank Lucania. Under their leadership the teams have helped deliver this very successful quarter.
Turning to the marketing front, we feel we have turned an important corner. The When It Fits You Feel It brand positioning which launched in the first quarter has been very well-received and has been effective in differentiating us from our peers. Along with compelling promotions around big weekend events and holiday weekends such as Easter and Valentine’s Day, our messaging was crucial in bringing customers back to JCPenney in the first quarter. As a matter of fact, in the month of April we had the first positive traffic in the last 30 months.
We will continue to build on and refine our messaging in the second quarter as we fight for customers’ attention with marketing that continues to reestablish our unique value proposition and leaves an enduring impression that we meet the customer’s needs and wants by feeding her size, her wallet, her occasions and her lifestyle. Deb Berman and her teams are already working on back-to-school and holiday marketing campaigns for this year, and we are confident in our go forward marketing strategy.
J.C. Penney Company, Inc. (NYSE:JCP) website
Finally, we are focused on being a leader in omnichannel retailing. jcp.com, which is the cornerstone of that strategy, continued to perform very well the first quarter as it has throughout the turnaround. Total online sales rose 25.7% in the quarter. Our associates at stores continue to do a great job helping our customer find additional sizes, styles and colors that she needs online at JCPenney.com.
We can complete their online order right at the point of sale then ship the goods to their home or back to their favorite JCPenney store for free. For the first quarter Find More Referrals were up double digits over last year.
The recruitment of Mike Rogers as the leader of J.C. Penney Company, Inc. (NYSE:JCP) omnichannel strategy and execution is already making a big difference. Mike and his team are helping us to further integrate digital capabilities and marketing, by doing stores and online. In the end, the customer experience from marketing to browsing to checkout has to be seamless across all channels and mobile devices, and that is what we are working toward.
On the financing front, we also announced today that the J.C. Penney Company, Inc. (NYSE:JCP) proactively obtained a fully committed underwritten $2.35 billion senior secured ABL credit facility to replace the Company’s existing bankline.