J.C. Penney Soars as CEO Makes the Tough Choices Investors Want

(Bloomberg) -- J.C. Penney Co. surged as much as 23 percent -- the most in five years -- as the retailer announced plans to close 15 more locations and Chief Executive Officer Jill Soltau said the department-store chain “has the capacity to deliver improved results.” The company also announced a trio of new executives.

  • Comparable sales, closely watched measure in the retail sector, fell 6 percent in the critical fourth quarter on an unshifted basis, missing analysts’ expectations for a 4.7 percent drop, according to Consensus Metrix. The direction wasn’t a surprise: The company had already pre-reported that the Christmas period was a tough one. Profit, however, did exceed analysts’ expectations and the company predicts it will have a positive free cash flow this year.

Key Insights

  • The store closures are one of the first major moves by Soltau, who took the helm in October. She said she’d be taking a close look at the company’s network of about 860 sites, and already named three locations in January slated for the chopping block. She also hired Michelle Wlazlo, who most recently worked at Target Corp., as chief merchant.
  • Soltau said the company “has already taken meaningful steps to drive improvement in key businesses” such as women’s apparel and jewelry. The company has also eliminated low-margin product categories, she said. Improving the retailer’s inventory mix was seen as a key challenge when Soltau came on board.
  • The results reiterate the idea that not every retailer had the upbeat Christmas season analysts had been expecting. While Walmart Inc. had its best holiday quarter in at least a decade and Best Buy Co. delivered sales that outpaced projections, J.C. Penney’s revenues of $3.67 billion were just short of analysts’ average estimate.
J.C. Penney Soars as CEO Makes the Tough Choices Investors Want

What Bloomberg Intelligence Says

“J.C. Penney’s moves to pare lower-margin categories will create near-term pressure, we expect, and the company still needs to close more than the 18 stores announced for 2019. The move to focus on the core, higher-margin businesses, such as women’s, active and special-sized apparel and fine jewelry, will take time to improve productivity."
Poonam Goyal, North America Retail Analyst
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Market Reaction

  • The shares jumped as much as 23 percent to $1.52 on Thursday, pushing the stock’s year-to-date gain to about 44 percent.
  • Read more here.

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