CNBC’s Courtney Reagan talks with Ron Johnson, JC Penney CEO, about whether his vision to transform the department store is working, and what customers and investors can expect to see next for the company.
this is a huge scandal in italy. how does it play into the this. in the middle of last year. phillip van heusen, we got a manufactured suggested retail price that really helps customers understand this is our high quality product. when your price is below that, we’d love you to show our manufacturers suggested price so the customer can understand the value. that was one of the biggest learning for last year. i still believe the customer knows the rice prigt for the product and they want a reference and the manufacturers suggested price is a way o conveying value. when we show that along with our price, it really does help sales. the question is what do you do with all of this privately label produced unbelievably well priced in arizona or jcp. it doesn’t have a compare. we don’t have to make up a price. we can do the hard work to find out what the price would be elsewhere. our buyers and legal team shop three to five specialty stores find the lowest priced item and find the price in three to five stores and whatners pay elsewhere and the way you can find value but rooted in the everyday price being the right price. that’s something unique jcpenney. we will see if consumers understand this a little better. coupons. jcpenney got rid of coupons. right now, you’re offering a $10 gift if you spend $10? isn’t that a coupon? it performance just like a coupon. we are doing that because our customer has told us at times they like to have additional value. as we approach this year, our number one priority is return to growth. also the number two priority and number three priority. we want to return to growth. we think the key to that is coing value. we’ll do that in whatever way it takes to return to growth. it all is rooted in the first price being the right price. you had said previously you had to get through one tough year. here we are, five days into year two. you said 2013 would be a year of growth. do you still believe earnings and comps will be growth positive this year. i believe we will return to growth this year. i think it will be easier when we complete this home transformation. as you know, we’re adding about 30 shops to our stores. by the middle of the year, nearly 40% of the stores will be all transformed. when that happens, i think people will see the new jcpenney. last year, we had pretty much the same merchandise priced differently. this year, we have different merchandise. joe fresh comes in, in six weeks and home transformation in may. the new jcpenney will come out of the ground and allow us to return to growth. do you think you’re still on track for 30 shops? absolutely. what about marsha stewart? she goes to court with macy’s in two weeks? will we see her products? martha will debut at jcpenney in may. there are a lot of categories martha will do macy’s has never done and greeting lines and helping people throw the perfect party. things like window treatments, there are categories we can do and some categories macy’s and martha are in dispute and we will see how that plays out. we have two minutes left. i have a lot of questions. it’s been a tough year. you lost $5 billion in market cap, shares lost half their value, credit now junk status. is this transformation still the right move and is that what the board believes as well? absolutely. if i had to do it over again, i’d do it almost like we did knit. i’d change some tactics and be a little more clear on pricing. we had a business model that didn’t have any growth in the future. every business needs to build off a growth platform. apple that digital devices in ios. google had search. early in our years, we had a promotional model which had merit but it played its course. we need a new growth platform. it’s rooted in helping americans live and look better everyday. the irresistible style unmatched value. if you come today, we have the style of specialist store with prices below target. when americans understand that and start to experience shopping in the new jcp, it will be phenomenal. we’ll have a growth platform for years to come. the key was we had to have the courage to transform the business. i’m so proud of our teams for staying the course last year. as we enter year two, we’re anxious to get started and return to growth. you say when customers see it. how do you get them back when you’re down 20% comps? how do you get that customer back or alienated them. come to our stores right now. our stores are busy. we’re gaining that customer back. we know who she is. we talk to her in a variety of ways and it’s important to get her back in store. it’s even more important to attract new customers. that’s the key to this long term, new customers. we had one of the oldest and poorest customers in the industry. we have to over time get a little younger and affluent. what will bring them in is everyday value on products they can’t find elsewhere. and not losing the older customer as well. we’d love to keep her. transformations are not inexpensive. you had laid out a plan and cost structure. you also said jcpenney would be able to self-finish and you wouldn’t have to tap the line of credit, is that true. ji w we will complete the transformation by 2015 and this year complete the transformation by 40% of nearly 700 of our stores. that’s significant. we do it with the cash we have on hand. we’ve yet to tap into the revolver. doesn’t me we wouldn’t at some point but we haven’t done it in the first year. we said we’d end the year in about a billion dollars in cash. in a couple weeks we tell people exactly where we ended up. our teams did a great job managing our cash during this transformation. there have been reports of layoffs to come or layoffs currently happening at both the headquarters and even some of the salon positions and receptionists. what can you say to address what’s going on there? is that because you’reunning out of money? there is a lot of rumors. we have like a rumor a day. today there is a rumor about layoffs at headquarters. i would never talk about that. but you have to separate the fact from the rumor. ultimately we need the right cost structure for this business and we have to grow and we will assure we do those two things. if we could end and talk a little bit about apple. you had a lot of success at apple. and they’re stumbling a little bit, too, maybe, do you have any advice for your old frien, tim cook? tim is a really smart guy and has a really great extensive team. i don’t think they need my advice. stay true to apple’s vision. if they execute well, they’ll flourish. what are the biggest lessons you’ve learned in this tough year? i’ve learned a ton of lessons. the most important thing is you have to state your vision clearly but be willing to learn and adapt. we’ve done a good job of that. you have to be really careful. change does take time. there are days you look back, you feel like it happened overnight. it does take time to change stores, change customer behavior and impact and influence. that doesn’t mean change is wrong, it just takes time. we’re aggressively building a new jcp. we have patience because we believe in our vision, our board believes in our vision and our industry believes in our vision and we are going to become america’s favorite store. a couple days ago we found a group of bondholder alleging jcpenney violated bond covenants and going to court. what do you say to that as far as investors, what is going on? we think this is totally groundless. there’s a lot of opinions that support that. this is a case where you’ve got — in the old days people hold stocks and make money on how the company performance. today, a lot of people try to make money in very short artificial ways. i don’t think there’s any truth to this. we don’t believe there is. we have to let this play out. thank you so much for joining us here today ron johnson, ceo off jcpenney. for now, carl, i send it back to