JCP's home business makes strides in 3Q

Retail Editor 8, November 12, 2010

Plano, Texas - The home business at J. C. Penney Co. made some strides during the company's third quarter, including in soft home, but less so in the more critical big-ticket items, as shoppers showed continued reluctance to spend.

"Margin is not an issue. It's more the customer's appetite for big-ticket items [that has impacted home sales]," explained Mike Ullman, chairman and ceo, during the retailer's earnings call this morning. "Window treatments and furniture are our toughest [home] categories...[They] continue to be soft in terms of returning to their growth potential, and that reflects where the customer is right now.

Soft home goods, housewares and luggage - one of the more profitable and fastest growing categories in home - were highlights in the department during the quarter.

Net income for the quarter ended Oct. 30, net income swelled by 63.0% to $44 million, or 19 cents per share, compared to $27 million, or 11 cents per share, in last year's quarter.

Sales rose a modest 0.2% to $4.189 million versus a year-ago $4.179 million. Results were impacted by the company's elimination of "Big Book" catalogs this year. However, internet sales through increased 3.0% to $361 million.

For the third consecutive quarter, comps increased, this time by 1.9%.

Year-to-date results were more impressive. Net income soared 131.4% to $118 million compared to $51 million last year.

Sales rose slightly, by 0.4%, to $12.056 million, and comps rose 1.5%, a turnaround from a year ago when they decreased by 7.2%.

Store traffic was up year over year as were the number of transactions, which increased low to mid single digits. Ullman said JCP in the quarter shifted some of its price points to the good-better bracket in the place of some better-best ranges "to offer sharper price points" to shoppers - a strategy he said that worked.

Looking to the fourth quarter holiday season, JCP's stores are stocked and assortment that "better than ever, including many exciting styles under our new brands," Ullman said. "We expect the environment to remain highly promotional and we have planned a robust calendar of events to ensure customers know that JCPenney should be their first-choice shopping destination."

Marketing is also a focus. "We've increased our marketing spend for the fourth quarter to create a loud and steady drumbeat." In addition, the retailer recently launched new mobile commerce site for on-the-go shoppers, boosted its offer of special incentives to JCP Rewards shoppers (now more than 24 million members), and expanded print media that "will be fully aligned to our stores and our assortments," Ullman said.

Management's guidance for the fourth quarter includes: comparable store sales to increase 3% to 4%; and total sales to increase approximately 150 basis points less than comparable store sales, due to closing of the Big Book.

Longer term initiatives for "2011 and beyond, Ullman said, call for an expansion of JCP's store count into new markets - including three new sites in San Francisco, suburban Maryland, and central Dallas - set to open in early 2011, as well as comprehensive renovations to more existing stores.

JCP also plans to open two new online businesses to grow its brands: Plaid for men's apparel; and Gift & Grace, a year-round gift source.



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