5 Things I Learned From the J.C. Penney Earnings Call

J.C. Penney announced its latest financial results yesterday—and they were grim, worse than expected, showing a $348 million loss for the quarter, as well as a 16 percent sales decrease. If former CEO Ron Johnson hadn’t already departed, this latest dismal showing may have been his last straw. Whatever you think of Johnson’s plans, and clearly they had some merit, no company can go on sustaining losses this way. 

Of course, Johnson is gone, and his replacement is Myron “Mike” Ullman, who also happened to be his predecessor. Ullman’s in an unenviable position: Not only is he inheriting a company perilously close to the abyss, but it’s one that has invested millions in a controversial “transformation” that is still in progress. So what do they scrap, and what do they keep? Based on Ullman’s comments on the earnings call after the company released its results, he is still puzzling that out. “As we say in the [Listening] ad, some of [the changes] you like, some of them not so much,” he said.

The call showed the stark contrast in the two CEOs—Ullman didn’t make any grand pronouncements about retail, like Johnson did, preferring to talk about the nuts and bolts of the business. While he did get in a few veiled jabs at his predecessor, he talked mostly about going forward, refreshingly so. He also stressed that the company was “listening” to all the stakeholders in the business, including employees, vendors, and customers. That was also refreshing.

Among the highlights of the call:

1. Don’t expect things to turn around too quickly. J.C. Penney’s recent “Thank You” ad, coupled with some upbeat analyst reports, had led some to think the department store was righting the ship faster than expected. But Ullman didn’t sound too upbeat, saying improvements “won’t happen overnight.” At another point, he admitted that bringing back the core customer “will take time.” He also didn’t add any specifics about recent sales, noting J.C. Penney is about to arrange new financing. 

2.The stores-in-stores will continue, but it seems like they will be scaled down. In a strange quirk, Ullman dubbed them “attractions”—possibly indicating he sees them as draws, but not the company’s main business. (Johnson, of course, famously saw things the other way.) “The customer really looks at them more as features, things that when they turn around from shopping the core, they see a Sephora or they see Liz Claiborne or Joe Fresh,” Ullman said, adding that the company doesn’t have any set number of shops that it wants. (And there’s still no news on whether Johnson’s plans for Tourneau watch boutiques will ever bear fruit.) 

3. Traffic isn’t the big problem; getting people to buy is. We “had traffic in the stores,” Ullman said. “[Our customer] just didn’t buy as much because she didn’t find as much of what she wanted.” 

4. While most of the publicity has been about Johnson’s missteps with pricing, he also made dramatic changes in merchandising and deemphasized many of the store’s private brands, like St. John’s Bay. This remains a puzzling misstep, since Johnson made his name at a brand (Apple) that sold its own products. Regardless, expect to see the house offerings brought back. “We have three or four private brands that we know there’s demand for,” Ullman said.

5. Another mystery about Johnson’s tenure: Why dot-com fared so poorly. He was, after all, a tech guy. Ullman made it clear that will change. “Clearly we gave up a lot of Internet business, which we’re happy to take back,” he said. “Over the last year jcp.com functioned as a completely separate entity inside the company with little synergy between stores and online. We need to create a seamless, omni-channel experience, with strong store and digital convergence.”

Most of these comments and thoughts—as well as the renewed emphasis on testing and listening—are pretty much common sense. Ullman may not necessarily be the guy to take Penney into the future, like Johnson billed himself as, but he may be the right person at this moment to stabilize the business and keep it alive. Let’s hope so.

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JCK News Director

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