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JCPenney to shut 130-140 stores to drive profitability

By Prachi Singh

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Management

J. C. Penney Company said that comparable store sales were down 0.7 percent for the fourth quarter and flat for the full year. The company said, it managed to deliver a 514 million dollars improvement in net income for the full year. JCPenney also said, as a part of the company's successful return to profitability plan, it expects to close two distribution facilities and approximately 130 - 140 stores over the next few months.

Commenting on the company’s results, Marvin R. Ellison, Chairman and CEO, said in a statement, "We are pleased that in the face of a very challenging 2016 retail environment we delivered our first positive net income since 2010. As recent as 2013, JCPenney reported a net loss of nearly 1.3 billion dollars or 5.13 dollars per share, and negative EBITDA of 641 million dollars. This year, we delivered positive net income and generated EBITDA of over 1 billion dollars.”

Fourth quarter and FY16 results summary

JCPenney reported net sales of 4 billion dollars in the fourth quarter of 2016 and 2015. Comparable store sales were down 0.7 percent for the quarter. The company said, home, Sephora, salon and fine jewelry were the company's top performing merchandise divisions during the quarter. Geographically, the Southeast and Pacific were the best performing regions of the country.

For the full year 2016, JCPenney reported net sales of 12.5 billion dollars compared to 12.6 billion dollars in 2015, a 0.6 percent decrease. Comparable store sales were flat for the year.

For the fourth quarter, gross margin was 33.1 percent of sales, a 100 basis point decline compared to the same period last year. The company delivered a 323 million dollars improvement in net income over the prior year to 192 million dollars or 0.61 dollar per share. Adjusted earnings improved 81 million dollars to 0.64 dollar per share for the fourth quarter this year compared to 0.39 dollar per share last year.

For the year, gross margin decreased 30 basis points to 35.7 percent from 36.0 percent in the prior year. For the full year, the company delivered a 514 million dollars improvement in net income over the prior year to 1 million dollars compared to 1.68 dollars per share last year. Adjusted earnings per share improved to 0.08 dollars per share for the year compared to 1.03 dollars per share last year.

EBITDA improved 288 million dollars to 427 million dollars for the quarter, including the 62 million dollars gain on the home office sale, a 207 percent improvement from the same period last year. Adjusted EBITDA for the quarter improved 68 million dollars or 18 percent to 449 million dollars.

FY16 EBITDA improved 477 million dollars, including the 62 million dollars gain on the home office sale, to 1 billion dollars for the year, a 91 percent improvement compared to last year. Adjusted EBITDA improved 294 million dollars to 1 billion dollars, a 41 percent improvement versus last year.

JCPenney to pull shutters on 140 to 160 stores

The company said its store closure plan and other strategic decisions will help align the company's brick-and-mortar presence with its omnichannel network, thereby redirecting capital resources to invest in locations and initiatives that offer the greatest revenue potential.

"In 2016, we achieved our 1 billion dollars EBITDA target and delivered a net profit for the first time since 2010; however, we believe we must take aggressive action to better align our retail operations for sustainable growth. Our decision to close stores will allow us to raise the overall brand standard of the company and allocate capital more efficiently," added Ellison.

The company has also initiated a voluntary retirement program for approximately 6,000 eligible associates for those employees who will lose their jobs due to closing of stores. The company believes that closing stores will also allow it to adjust the business to effectively compete against the growing threat of online retailers.

As a result of the store actions, JCPenney will close a distribution center located in Lakeland, Fla. in early June, at which time operations will transfer to the company's logistics facility in Atlanta as part of a strategic effort to streamline store support services. The company also is in the process of selling its supply chain facility in Buena Park, California, in an effort to monetize a lucrative real estate asset.

JCPenney says the total store closures represent approximately 13 - 14 percent of the company's current store portfolio, less than 5 percent of total annual sales, less than 2 percent of EBITDA and 0 percent of net income. Once cycled, the company expects these closures to be net income neutral. The annual cost savings resulting from these strategic decisions, primarily occupancy, payroll, home office support, corporate administration and other store-related expenses, are estimated at approximately 200 million dollars.

The company's 2017 full year guidance, which includes the expected impact of store closures, includes comparable store sales to be -1 percent to +1 percent; gross margin to be up 20 to 40 basis points versus 2016; and adjusted earnings per share to be 0.40 dollar to 0.65 dollar.

Picture:Facebook/JCPenney

JCPenney