This summary is based on the third quarter fiscal 2008 earnings call conducted by J.C.Penney Company Inc. (JCP) on November 14, 2008.
Management:
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President: Kenneth C. Hicks
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Chief Financial Officer: Robert B. Cavanaugh
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Chief Executive Officer: Myron E. Ullman III
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Director of Investor Relations: Phil Sanchez
Key Investors Issues
- Earnings were $124 million or 56 cents a share, down 52.5%.
- Total sales decreased 8.7% to $4.32 billion from $4.7 billion in the prior year.
Year to Date Highlights:
- Sales dropped 6% to $12.7 billion from $13.5 billion in the prior year.
- Net income was $361 million or $1.61 a share, down 47%.
Third Quarter Highlights
Earnings were $124 million or 56 cents a share, down 52.5% from $261 million or $1.17 a share in 2007 due to a decline in sales stemming from the lower mall traffic levels and severely restrained consumer spending.
- Total sales decreased 8.7% to $4.32 billion from $4.7 billion in the prior year as comparable store sales decreased 10.1% compared with the 2.4% comp decrease in last year’s third quarter.
- Sales during the last week of the quarter were negatively impacted by a promotional shift that moved a significant event into this year’s November period from last year’s October period.
- Operating income was $255.0 million compared with $411.0 million last year, or a decrease of 280 basis points to 5.9% of sales, compared to 8.7% last year.
- SG&A expenses continued to be well managed, decreasing by $50.0 million, or 3.7%, versus last year despite the addition of 35 new or relocated stores and a gross square footage increase of approximately 2.8% since last year’s third quarter.
SG&A experienced some deleveraging resulting from the total sales decline and, as a percent of sales, increased 160 basis points to 30.1% versus 28.5% in last year’s third quarter.
- SG&A performance continues to reflect the positive impact on associate productivity from the alignment of inventory levels with sales trends as well as the ongoing benefit in store payroll expense from the use of the workforce management technology.
- Total operating expenses decreased by $59.0 million, which included incremental depreciation expense of $8.0 million offset by an $8.0 million decrease in pre-opening expenses.
- The company had cash investments of approximately $1.6 billion, which reflects the normal decrease from the second quarter balance associated with seasonal working capital needs.
The firm ended the quarter with long-term debt of $3.5 billion and capital expenditures for the quarter were $242.0 million.
- From a geographic perspective the Northeast and Central regions had the best sales trends, while the Southeast and Southwest regions were the weakest, where the impact from soft housing markets has been most pronounced.
- Women’s and children’s apparel and family shoes were the best performing divisions, while fine jewelry and home divisions continue to be the weakest businesses.
J. C. Penney’s Internet business, one of the largest general merchandise e-commerce sites, has also been impacted by the weakness in home division sales.
- The jpc.com sales decreased approximately .3% versus an 11.8% increase last year, as a result of home merchandise comprising a significantly larger portion of catalogue and online sales than it does in the stores.
- Gross margin rate decreased by 120 basis points to 38.5% as a result of increased clearance activity in response to soft sales and to meet inventory objectives.
- With respect to inventory management, the firm continues to take significant action and as of the end of the quarter total inventory was down 5.6% despite the addition of 35 new stores.
The firm opened 12 new stores, 11 of which were in the off-mall format in line with the plan to open 35 new or relocated stores in 2008, which represents a 2.8% increase in gross square footage.
- In addition to new store, the firm has also completed 21 major renovations, 3 expansions, 90 store refurbishments and updates, and significant fixture and store environment improvements in over 600 stores across the country.
- It also added 10 new Sephora inside J. C. Penney locations, which brings it to 91 locations.
Initiatives:
- The firm has planned an aggressive, integrated marketing campaign to explicitly show how the company is making the joy of giving come alive in the stores, on jcp.com, and in the catalogues.
- For the holiday season, the firm has redoubled its efforts to provide customers with a better-than-ever Red Box gift collection with distinctive, stylish gifts for every member of the family.
- Along with the enhanced gift strategy, other examples of where we have introduced newness include the launches of Decree and Fabulosity in juniors, [Latitude] in intimate apparel, and Linden Street in home.
- For spring 2009, the firm recently announced two exclusive brands that will add more excitement to the women’s apparel offering.
