2 Improvements J.C. Penney Sees for 2014

J.C. Penney shares flew high on a positive fourth-quarter report. But why is the struggling retailer optimistic for the year to come?

Mar 4, 2014 at 4:05PM

J.C. Penney (NYSE:JCP) shares leapt 14% aftermarket last Wednesday following its fourth-quarter report. The company reported quarterly comparable-store sales growth that lagged only slightly behind the performances of Macy's (NYSE:M) and Nordstrom (NYSE:JWN) and soared past Sears Holdings (NASDAQ:SHLD). J.C. Penney also showed signs of managing inventory turnover and issued some of the best yearly guidance the company has posted in years. But what's behind J.C. Penney's optimism for 2014?   

During the earnings call, returned CEO Myron (Mike) Ullman outlined the company's three-phase turnaround plan. J.C. Penney has already moved through the stabilization and rebuilding phases. And now comes the time for the progressive "go-forward" phase that Ullman hopes will carry the company toward long-term growth.

What improvements does J.C. Penney predict will occur in 2014?  

Jc Penney Store

Source: J.C. Penney.

Improved gross margin through careful brand selection 
Mike Ullman's return included the need to immediately tackle the inventory issues Ron Johnson's turnaround attempt created. Johnson had done away with some popular private brands to focus on higher-profile brands that often didn't sell as well. Ullman's restocking process involved discontinuing underperforming brands including William Rast, JCP Everyday, and JCP Men's while simultaneously working to increase -- or reintroduce -- brands that have resonated with customers: St. John's Bay, Liz Claiborne, and Arizona, to name a few.    

Gross margin took a hit last year during the process of replacing the old with the new, which required a hefty amount of markdowns and an inventory turnover problem. But the fourth quarter was the first to begin showing that this process might've neared completion. 

The full-year growth margin for 2013 was 29.4% of sales compared to 31.3% in 2012. But the fourth quarter showed improvement at 28.4% of sales compared to 23.8% in the prior year's quarter. 

JCP Gross Profit Margin (Quarterly) Chart

J.C. Penney gross profit margin (quarterly) data by YCharts.

J.C. Penney still has some work ahead to reach the margins of Macy's and Nordstrom. But the company has at least recovered from the days it was dipping down to Sears' levels. And J.C. Penney expects to show another margin improvement in the first quarter -- presumably as the company becomes less reliant on markdowns related to inventory overhang. 

Online sales reporting double-digit percentage growth 
An often overlooked sign of J.C. Penney's slow recovery is the sales performance for the chain's website. JCP.com sales grew 26% in the fourth quarter to $381 million, which was an increase of nearly 6% of the prior year's quarter, which had shown a drop of 34% year over year.

What drove the growth? J.C. Penney has focused on unifying the store and online experiences, which included better stocking for both shopping experiences. The website also received a visual overhaul that made online shopping more user-friendly. And the complete overhaul of the home segment, which included Ron Johnson changes that customers particularly disliked, has also helped online sales. Home was traditionally one of the strongest segment sellers through the website, since it's easier to display a number of larger items online than on the showroom floor.

Foolish final thoughts
The fourth-quarter results reflect a company that's moved through a transition but has yet to prove long-term results. J.C. Penney investors have reason to celebrate that Mike Ullman's at least undone the damage from Ron Johnson's strategies. But remember that Johnson was brought on because J.C. Penney wasn't performing as well as its peers. J.C. Penney's future seems safer than that of Sears, but the company still needs to prove its ability to keep its head above the choppy retail waters.

Want a stock with a clearer future?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Brandy Betz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers