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Commentary: J.C. Penney turnaround still on track despite weak Q3


Neil Saunders, CEO of retail insights and consulting firm Conlumino, comments on J.C. Penney’s results for the third quarter in which sales came in under forecasts.

“After a good run of growth, J.C. Penney has faltered this quarter with both total and comparable sales slipping into negative territory. While the company is now overlapping some tougher prior year comparatives, this is nonetheless a disappointing outcome that takes the shine off some of the recent progress made under its recovery program.

That said, we do not believe that it entirely blows the turnaround plan off course, not least because the company continues to reduce its losses and has a pathway to profitability. Moreover, the comparable sales slip is fairly modest when compared to rival stores and clearly shows that JCP is outpacing the rest of the department store market.

The softness for the quarter has come from apparel where sales were down sharply. This is a challenging segment for most department store players and, in our view, it is a category where JCP has much more work to do in refining and developing its offer. Thankfully, JPC has been developing other levers it can pull to generate growth which have left it less exposed to clothing than some of its rivals.

One of the more recent developments has been JCP’s foray into appliances. This has given the company a new stream of growth, especially at a time when consumers are abandoning Sears in increasing numbers. From our store visits, the appliance offer is comprehensive and well executed and we believe it will bolster the sales line in the quarters ahead.

Home furnishings is another area that performed well, reflecting the refurbishment of many departments and the more inspirational ranges that JCP is now selling. Looking ahead we believe this will be another solid growth category in the months ahead.

Along with the continued roll out of Sephora concessions, these category developments are positive inasmuch as they make JCP far less reliant on apparel. This offsets some of the vagaries and fluctuations of the fashion business and helps transform JCP into a proper department store destination which gives consumers many reasons to visit.

As we head into the holiday quarter, we have a slight concern around mall traffic which could impact on JCP’s figures. This is largely something outside of the company’s control and we believe that it is a factor in this quarter’s weaker figures. Because of this JPC will have to work hard to pull in customers, if not in store then online. Generally we are encouraged by the company’s holiday plans and believe that its “Joy Worth Giving” campaign strikes the right note and features some good deals and interesting products.

Although we think JCP will pick itself up after this latest stumble, we are now more cautious about the final quarter performance. As such, we think it will end the year with modest comparable sales growth of around 1.8%. This is flatter than previous company guidance but given the state of the department store sector it is not a bad outcome.”

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