JCPenney to Close 33 Stores, Cut 2,000 Jobs

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

JCPenney StorePlano, TX—JCPenney once again shook Wall Street analysts late Wednesday when the struggling retailer reported its plans to close 33 underperforming doors and eliminate 2,000 jobs in the process.

The cuts, which come on the heels of some by Macy’s Inc., apparently will save JCPenney more than $65 million annually. The company will take $26 million in pretax charges in the third quarter and $17 million in future quarters. The job cuts are only a small percentage of the 116,000 employees who work for the 1,100-store chain. All the job cuts are related to the store closings.

“As we continue to progress toward long-term profitable growth, it is necessary to reexamine the financial performance of our store portfolio and adjust our national footprint accordingly,” said CEO Myron E. “Mike” Ullman, III. “While it’s always difficult to make a business decision that impacts our valued customers and associates, this important step addresses a strategic priority to improve the profitability of our stores and position JCPenney for future success.”

‘Much Ado About Very Little’

JCPenney previous raised some eyebrows when it provided a vague announcement about its December comparable store sales, saying only it was “pleased” with holiday results. Since some the statement contained no figures on sales or traffic as in previous months, analysts took it as a sign the retailers sales had fallen.

“It was a season where they realized that they had to do more to reconnect with the customers they’ve lost,” said Brian Sozzi, chief equities strategist at Belus Capital Advisors.

However, some analysts says Wednesday’s news actually has little long-term impact on JCPenney’s business model.

Rick Snyder, senior retail analyst at Maxim Group who rates JCPenney a “hold,” said the announcement only changes his forecasting models slightly. “It’s much ado about very little.”

“While we applaud the projected $65 million in annual savings, the foregone revenues from the closed stores make it more difficult to lever fixed costs,” he said in a note to clients. “In the end, the change to our numbers is de minimis. We still have the company running out of cash in Q3 of 2015.”

In another move, JCPenney is brining back sales commissions which had been eliminated under the tenure of ex-CEO Ron Johnson. Sales associates in window treatments and fine jewelry will be put on commission next month, while furniture salespeople will follow in March, JCPenney spokeswoman Kristin Hays said. There currently are no plans to revive commissions in other departments.