J.C. Penney (JCPN.Q) has struggled to not become a casualty of the so-called retail apocalypse. The company has been proactive in changing its business, while also selectively closing stores. But those efforts have so far produced mixed results.
The department store chain has done a lot right: It added appliances back to its stores, and has selectively offered home services in market spaces somewhat abandoned by rival Sears (SHLDQ), another struggling retailer that has been rapidly closing stores.
J.C. Penney has also changed its merchandise mix -- specifically in women's apparel -- and it has tried to make its stores destinations by adding store-within-a-store concepts. In addition, the company has invested in building out an omnichannel model, while trying to build digital sales and opening smaller-format stores.
These moves have shown some signs of working, but it's not clear whether the retailer will fully turn the corner. That's a question which was further complicated by CEO Marvin Ellison.
J.C. Penney has been working to transform its business. Image source: J.C. Penney.
Where does J.C. Penney stand now?
The optics of Ellison leaving don't look great. His decision to leave looks like a CEO jumping off a ship that might be sinking. In reality, Ellison left to become CEO of Lowe's (LOW 1.49%), a bigger, healthier company in a market where the CEO spent much of his career. It's not really fair to take Ellison's leaving as a referendum on the retailer. Instead, it should be viewed as someone taking a likely higher paying, better job, even if that does hurt his previous employer.
In Ellison's last quarter as CEO, the company saw net sales drop by 4.3% (largely due to store closings), while comparable-store sales rose by 0.2%. The chain, however, did trim its loss to $78 million ($0.25 per share) from $187 million in the first-quarter of 2017 ($0.60 per share).
"Overall, we believe that our strategies are beginning to take hold, as we are seeing improvement in a number of areas," Ellison said in the earnings release. "Apparel categories performed well during seasonable weather periods, and our beauty and home refresh initiatives performed well above our total comp sales performance for the quarter."
The now-former CEO also reaffirmed that full-year comparable-store sales would come in between flat and up 2%. It's hard to call these numbers strong, but they could at least be considered encouraging.
Will J.C. Penney make it?
I felt more confident in J.C. Penney's turnaround before Ellison left. The company, which is being run by an "Office of the CEO" made up of Chief Financial Officer Jeff Davis, Chief Customer Officer Joe McFarland, Chief Digital Officer Therace Risch, and Executive Vice President of Supply Chain Mike Robbins.
In theory the company is searching for a new CEO, but it's hard to see it landing an attractive candidate. Its next leader will likely be one of the four people above, each of whom is a bit of an unknown.
That said, J.C. Penney appears to have made a lot of moves that are slowly starting to pay off. The company should benefit from the near-certain death of Sears and the struggles of other department store chains.
The chain's survival is not guaranteed, but an infrastructure has been put in place that can be built upon. J.C. Penney still needs to do a lot of work to rebuild a customer base and give people reasons to go to its stores; that said, the company has reversed its negative slide and has some slight momentum. The new CEO should be able to build on that and turn this from a near-disaster into a survival/success story.
