J.C.Penney's October Results Signals Turnaround Taking Hold

Walter Loeb, Contributor

J.C.Penney’s sales release for October 2013 is very promising.  Sales increased 0.9% over the previous year.  As I have written about in past blogs, it is what I thought would happen for several reasons including very easy comparisons and better management.

October was a month when the government shutdown negatively affected consumer sentiment and spending. It was only in the last few days of the month that comparisons became easier since last year the horrible storm Sandy kept customers at home. I believe JC Penney is  past the inflection in sales. Last year in the fourth quarter Ron Johnson, the president at the time, managed to lose 32% of sales over the previous fourth quarter. I now expect positive sales increase of 8% to 10% in the fourth quarter of 2013.

My optimism is based on a forecast of a colder pre-Christmas holiday season. That should encourage shopping for warm winter wear in many of the brands that are back in stock and that had been iconic for J.C.Penney. This includes private labels like St. John’s and Stafford as well as national brands like Nike, Levi, and Carter’s, Dockers, Vanity Fair and Izod.

My personal visits to stores still sees work-in-progress in the home store, I have seen more merchandise intensity there. It will probably be another three month until all the wanted home merchandise will be on the shelves. The current results were achieved with some help from the home store, which is still lagging but better than it was. This is particularly evident in Internet sales. Total Internet sales were up 37% in October. Home sales were up over 50% showing that the demand for J.C.Penney home products is out there. Once the home store has more merchandise intensity, and carries brands the customer wants, I am sure it will add materially to the sales momentum.

Fresh merchandise has arrived at stores. There is more merchandise excitement for the customer. However, the company is still clearing merchandise from the first two quarters of this year. This affected gross margins negatively for the whole quarter. I hope that much of this merchandise is now at very low prices and will fly out of the store by Black Friday. Selling on the day after Thanksgiving, Black Friday has been altered. J.C.Penney stores, as well as many competitors like Macy’s and Kohl’s, will now open at 8 pm on Thanksgiving Day. Associates will have to gobble up the turkey and then report to battle stations in the stores. There is a “can do” attitude by coworkers that includes the spirit of meeting competitive challenges. I think morale is very high in stores with some managers being “warriors”. They have the authority to make decisions for their stores and to rally their co-workers to fight for every consumer dollar.

Myron (Mike) Ullman III, president and CEO of the company is a realistic manager.  He is not getting too excited just yet, saying he sees a challenging consumer environment. He feels the company is on the right track to return to profitable growth.  I believe he has made plans to deal with the shortened holiday selling season and consumer apathy which impairs store traffic.  I expect the company to be very promotional in order to attract consumer traffic and drive sales increases during the coming season. Building traffic is a necessity for J.C. Penney’s currently nascent turnaround to gain momentum and ultimately return to former levels of  sales and profits.