JC Penney reported its first quarterly sales gain since the second quarter of 2011.
Myron E. (Mike) Ullman, III, Chief Executive Officer said, “JCPenney achieved what it set out to do on a number of important fronts in 2013. We stabilized our business, both financially and operationally, and restored our process disciplines, promotions, inventory levels and focus on the customer. As a result, we generated positive comparable store sales in the fourth quarter and ended the year with more than $2 billion in total available liquidity. These important accomplishments reflect the progress we have made in our turnaround, which remains on course heading into 2014.”
Fourth Quarter Results
For the fourth quarter, JCPenney reported net sales of $3.78 billion compared to $3.88 billion in the fourth quarter of 2012, which included the additional 53rd week. Comparable store sales rose 2.0 % for the quarter, which represented a sequential improvement of 680 basis points when compared to the third quarter of fiscal 2013. Online sales through jcp.com were $381 million for the quarter, up 26.3 % versus the same period last year, excluding the 53rd week.
Home, men's apparel, women's accessories and Sephora inside JCPenney were the Company's top performing merchandise divisions.
For the quarter, gross margin was 28.4 % of sales, compared to 23.8 % in the same quarter last year, representing a 460 basis point improvement. Gross margin included a negative impact of 190 basis points associated with the discontinuation of brands that are not part of the Company's go-forward merchandising strategy, of which 90 basis points was related to the de-valuing of discontinued brand inventory at year end. Gross margin was also negatively impacted by higher than anticipated clearance markdowns taken late in the quarter.
SG&A expenses for the quarter were approximately $1 billion, down 17.0 % from the fourth quarter of 2012.
The Company incurred $50 million in restructuring and management transition charges, including $22 million in Home office and stores, $5 million in management transition and $23 million of other.
In the fourth quarter, the Company recognized a tax benefit of $270 million primarily related to gains resulting from the annual re-measurement of the pension plan. This tax benefit was offset by tax expense recorded for such gains in other comprehensive income.
For the fourth quarter, the Company reported net income of $35 million or $0.11 per share. This reflects the following items:
- ($0.16) of restructuring and management transition charges;
- ($0.08) for primary pension plan expense;
- $0.15 of benefit from the net gain on the sale of non-operating assets; and
- $0.88 of income tax benefit from continuing operations resulting from gains in other comprehensive income.
- Adjusted net loss for the quarter was $206 million or ($0.68) per share. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
Full Year Results
For the full year 2013, comparable store sales decreased 7.4 %. Total sales decreased 8.7 % for the year. Internet sales through jcp.com grew $59 million to $1.08 billion for the year, increasing 5.8 % over last year.
For the year, gross margin decreased 190 basis points to 29.4 % when compared to the prior year's 31.3 %. For the year, SG&A decreased $392 million or 8.7 % compared to the prior year.
The Company reported an operating loss for the full year of $1.42 billion, which includes $215 million of restructuring and management transition charges. Excluding restructuring and management transition charges, the net gain on the sale of non-operating assets of $132 million and the qualified pension plan expense of $100 million for the year, the adjusted operating loss was $1.24 billion. A reconciliation of non-GAAP adjusted operating income/(loss) to the most directly comparable GAAP financial measure is included with this release.
During the year, the Company opened 60 new Sephora inside JCPenney locations, bringing the total to 446.
Mr. Ullman continued, “With the most challenging and expensive parts of the turnaround behind us, we will focus on improving gross margin, managing expense and steadily growing our sales in 2014. Our strategic plan seeks to enhance performance across all of the key drivers of our business: merchandising, marketing, store experience, jcp.com, our teams, and our operations. The goal is to deliver consistently improving financial results, and to restore JCPenney as a leader in American retail.”
- The Company's guidance for the fiscal first quarter of 2014 is as follows:
- Comparable store sales: expected to increase approximately 3 to 5 %;
- Gross margin: expected to improve versus last year's first quarter;
- SG&A expenses: expected to be slightly below last year's levels;
- Primary pension plan income: approximately $5 million;
- Depreciation and amortization: expected to be approximately $155 million; and
- Income tax rate: expected to be approximately 0 %.
The Company's 2014 full-year guidance is as follows:
- Comparable store sales: expected to increase mid single digits;
- Gross margin: expected to improve significantly versus 2013;
- Liquidity: expected to be in excess of $2 billion at year-end;
- Capital expenditures: expected to be approximately $250 million;
- Primary pension plan income: approximately $19 million; and
- Depreciation and amortization: expected to be approximately $630 million.