Like Kohl’s, JC Penney also released some very solid numbers for the quarter: overall sales up 2.5%, comp store sales up 1.3% for the 12th consecutive quarter of positive same store sales, and profits up 22.1%. The company cites strong sales in fine jewelry, mens, childrens, and footwear while they say sales were soft in womens apparel, unlike rival Kohl’s.
According to president Ken Hicks on the conference call, “gross margin continues to benefit from the performance of our private brands, as well as continuing improvement in seasonal transition and merchandise flow.” This follows up his earlier remarks on womens apparel, when he said “In our womens apparel business, we are taking aggressive action with markdowns to keep our inventory fresh, as well as building or key brands and adding new brands such as a.n.a. In addition, we continue to develop brands such as [E. Spiff], which we will introduce this fall in traditional careerwear.”
This call also gave us the first real look at the partnership between JC Penney and Sephora. Outlining the future rollout, Ken Hicks said “Beginning this fall, we will bring Sephora into a handful of JCPenney stores, and next year, our plans are to add Sephora, primarily in new stores, with some additional existing stores also having the concept. A more extensive Sephora rollout is planned for 2008.”
Walking into any JC Penney these days, one can see that there is opportunities to develop their womens apparel business further. Hicks blames this on general negative trends in fashion, (”.. the lack of really exciting things in fashion aren’t helping the business”) which completely suprises me. It’s clear that JC Penney may not be offering really exciting things in fashion, but don’t blame it on fashion in general.
Back to the numbers: direct sales via catalog were up 3.9%, but Internet sales were up over 22%. The modest gains in diret mail, which have been continuing to slip, lead me into the news that they have announced that they are de-emphasizing the catalog (via marketingblurb).
JC Penney is not suspending their print catalog, but at the annual ACCM Catalog Conference, a company official announced that the retail giant would focus on online rather than catalog sales. It seems that their online sales are growing at 23% per year, while print sales are at 10% growth and falling every year.
DMNews has more on the story. In fact, they are critical of the move, saying:
Former Lands End president/CEO Mindy Meads at the Philadelphia eTail 2005 conference cited a study claiming that customers who get catalogs generate a 15 percent increase in transactions and a 16 percent jump in overall spend.
Retailers like J.C. Penney dont want to lose the chance to train the next generation of shoppers kids watching Mom and Dad open the catalogs, then call in an order or go online. No catalog, no brand recall. Too much reliance on one channel of sales is not good, either. What if there is more stringent regulation down the road for e-mail and e-commerce?
Again, more here via DMNews.com
Like I’ve talked about before, JC Penney is at a stage where they can recapture what they are missing - through initiatives like the Sephora deal, building the private brands and even sponsoring the MTV Video Music Awards. As a consumer, I think their key to winning us back is through developing brands that we want to shop and making their buildings more exciting and fun to shop. I can’t tell you the last time I’ve gone into a JC Penny that hasn’t felt dated and stale.
JC Penney had a good quarter - higher profits on only slightly higher sales - and this could set them up for a very solid year.
More information via marketwatch.com’s coverage of the results. Retailstockblog has a complete transcript of the call, as well.
The full SEC form 8-k is here, via Yahoo.
Full transcript of the conference call from Seeking Alpha.
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