J.C. Penny Conference Call Highlights

J.C. Penny

reported its third quarter earnings on Monday. Shares of the company are down seven percent. Below are some key highlights from its conference call: Performance Metrics: • Comparable store sales for the third quarter were flat for last year. • Year-to-date, comparable store sales were up 4.3% when compared to the first three quarters of last year. • Home and Fine Jewelry were our top performing merchandise divisions in the quarter and Sephora inside JCPenney also continued its strong performance during the quarter. • Sephora is an important part of JCPenney's incremental growth initiatives over the next several years. • It continues to deliver double-digit growth, drive traffic, and generates significant customer loyalty. • Turning back to the third quarter, August was our strongest month of the quarter, with a solid start to the back-to-school season. • However, like many other retailers, we saw considerable slowdown in September as our weakest month in the quarter. • Our performance in October is better than September, despite the fact that October was our toughest comparison year-over-year. • During the third quarter, we had significant less clearance and summer transitional merchandise on the floor when compared to last year. • To put this in perspective, the sales of clearance merchandise were down almost 30% this quarter, while the sale of go-forward fall goods were up mid-single digits. • While the lower levels of clearance merchandise certainly helped us maintain healthy gross margins during the quarter, when we were hit with unseasonably warm weather, it hindered our ability to sell fall and cold weather goods. • Ultimately, this impacted our top line. • As you recall, this time last year we were liquidating brands and the spring merchandise from the previous strategy, especially in Home and Kids that did not resonate with the customer. • That liquidation drove a lot of volume last year albeit at very low margins. • As the weather has turned colder across the country, we've seen sales trends improved significantly in seasonal categories like outerwear, cold weather accessories and fleece. • While it's too early to call a trend, we're pleased with our sales performance during the first 10 days of November. • Comparable store sales were flat for the quarter. Year-to-date, the company has delivered a 4.3% comp increase. Overall, total sales were $2.764 billion for the quarter compared to $2.779 billion for the same quarter last year. • Total online sales through JCP.com grew 3.4%. This was on top of a 29.8% increase in the third quarter last year, giving us an approximately 33% two-year stack online. • We are pleased with the two-year performance, but as we discussed at our recent Analyst Meeting, we have plenty of opportunity to continue to improve our experience and performance online. • In fact, the only results from our new app and mobile site are extremely encouraging. • Store traffic remained negative this quarter, but consistent with our trend it continues to improve sequentially. Our store conversion, average transaction size, and average unit retail for the quarter were all up versus last year. • Units per transaction were down to last year. • As Mike said, following a strong back-to-school season, we experienced a slowdown in our business in September and October. • Although regular price and promotional goods were up mid-single digits for the quarter, our sales of far appeal - apparel merchandise, particularly given the unseasonably warm weather this quarter, were not enough to offset clearance being down nearly 30% year-over-year. • EBITDA was a positive $102 million, a $342 million improvement for the same period last year. • At the end of the third quarter, our inventory was $3.358 billion, a decrease of 10.4% over the same period last year. • We feel very good about our inventory content and levels heading into the critical holiday season. • As far as the West Coast port issues are concerned, we are seeing some impact from the situation in Los Angeles, but it is manageable. Guidance: • We fully expect to grow our business in the 2% to 4% range and gain additional market share. • We intend to grow this quarter by offering high-quality stylish and compelling merchandise assortments supported with promotional marketing campaign that effectively communicates the styles we offer at prices customers can afford. • We'll be opening our stores at 5:00 p.m. on Thanksgiving Day, and we also be offering great Black Friday deals all day on jcp.com. • We've sharpened our pricing this year on key value items across the store and we'll be offering our customers great deals all season long. • During appointment shopping periods like back-to-school and holiday, JCPenney is the customer's preferred choice for discovering great style, quality and value. • This year, we are confident customers will once again choose JCPenney for meaningful holiday gifts that fit in their family's budget.