JCP to cut $900 million, ‘self fund" transformation
Staff Staff -- Home Textiles Today, January 26, 2012
New York - JCPenney held its fourth and final presentation on strategy here this morning, this one focused on financials.
Company executives said the company will reduce overhead by $900 million over the next 10 years. Some $800 million in cash from operations will be used to fund the 1,100-store chain's shop-in-shop evolution in the current fiscal year - a project to which vendors will contribute, executives said.
[Editor's note: For more on JCP's remarks about vendor relationships, visit HTT"s Facebook page.]
Of the $900 million in savings, $400 million will come out of stores, $300 million will come from reduced advertising, and $200 million will be eliminated in the home office.
JCP's goal is to reduce overhead from the 2010 level of 33% of net sales to 27% by the time the company transformation is complete in 2015.
"We believe in a flatter organization," said Mike Kramer, who recently joined the company as chief operating officer.
In other financial news, the company announced it will no longer provide quarterly earnings guidance, opting to project annual earnings targets only. For the current fiscal year, Penney expects to meet or exceed its 2010 performance of $2.16 on an adjusted basis, or $1.59 on a GAAP basis.
Up to now, Penney executives have held quarterly conference calls with investors on the same day the company releases its results. That, too, is changing. Executives will now travel to New York for face-to-face meetings with investors a week after the quarterly financials are released.
Going forward, the company stop publicly disclosing its monthly sales performance, a move recently hired ceo Ron Johnson described as focusing the operation on long-term growth rather than hitting short-term targets.
Johnson acknowledged that JCP had reduced its orders for spring merchandise but described it as an effort to pump up turn. "If our orders are down it doesn't mean our sales expectations are down," he added. "I would prefer to chase the business."
Even so, Johnson said he expects sales in the first half of the year to be relatively soft as consumers adjust to the retailer's new pricing strategy. He said sales performance should improve over the second half of the year.
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