JCPenney’s New Strategy Includes $900M in Expense Cuts

JCPenney's new logo, signaling a "transformation" of its business

New York—A day after Ron Johnson, JCPenney’s ceo, announced a transformative price strategy for the department store, the company continued to reveal its new turnaround strategy, one that includes cutting $900 million in expenses over two years.

Most of the news about Johnson and JCPenney has focused on the plans to roll out a three-tiered everyday low price approach on all merchandise beginning Feb. 1.

In fact, JCPenney is already airing its new commercials featuring consumers screaming “No” as sales flyers, coupons, discount circulars etc. pour of out of their mailboxes. Followed by the company’s new logo and “2.1.12” when the everyday low prices hit sales floors.

On Thursday, Mike Kramer, chief operating officer, followed up Johnson’s outline with a new financial plan that also begins Feb. 1. Kramer said the company has targeted $900 million in expenses with the goal of lowering expense costs below 30% of sales in two years.

15,000 Jobs to be Eliminated?

Kramer said he expects to achieve an expense run rate of 27% by the end of the 2015, when the company’s transformation will be complete. Savings will come primarily from “stores, advertising and the operations” in the company’s home office in Plano, Texas.

Though no specified, such cuts might include eliminating jobs which has been rumored to be part of the plan.

The New York Post reported that 15,000 employees, 10%  of its the store’s workforce might be eliminated, including 4,700 full-time employees who reportedly were offered severance packages.

“As we transform the business model, our teams are committed to improving sales productivity in our stores, generating 40% or better gross margins, while lowering expenses to industry-leading levels. Taken together, this creates a formula for long term, sustainable profit growth,” Kramer said.

No Longer Reporting Monthly Comparable Store Sales

In addition to the cost-cutting measure, Kramer outlined plans for an $800 million of capital expenditures in 2012, most of which include created the new “town square” type shopping experience Johnson described on Wednesday.

Beginning in August, the company will start a “month-by-month, shop-by-shop” strategy to update its stores. That includes adding two to three shop concepts every month over four years.

One of the new brands that will be included in the new shop concept is “l’amour nanette lapore,” an exclusive collection with designer Nanette Lepore aimed at teen shoppers. Those shop concepts will be launched beginning in February 2013.

In other announcements about JCPenney’s financial situation, Kramer said the company now expects its fiscal 2012 full year earnings will “meet or exceed 2010 earnings per share of $2.16%. In addition, JCPenney is joining a growing list of retailers that no longer report monthly comparable store sales results, nor will it provide quarterly sales or earnings forecasts.

No Longer Reporting Monthly Comparable Store Sales

Instead, Kramer revealed plans to host face-to-face question-and-answer sessions in New York with investors and analysts following the retailer’s quarterly earnings announcements, starting with the first quarter of 2012. These questions-and-answer sessions will be webcast live and available for replay after the session.

Commenting on JCPenney’s plans to self-fund its transformation, Johnson added: “We are fundamentally re-imagining every aspect of our business and we fully expect the bold and strategic changes we are making to our operations will result in improved profitability. This should enable us to fund the transformation of JCPenney’s store experience, while at the same time returning value to shareholders with steady earnings growth.”

 

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