Dive Brief:

• After announcing an assertive plan last month to shutter 138 underperforming stores nationwide, J.C. Penney is delaying some closures amid boosts in traffic and sales in certain areas, CNBC reports.

• The new plan entails that liquidation will be postponed by six weeks and will now begin on May 22 rather than April 17 and wrap up by July 31, according to the report.

• The stores in the crosshairs represent about 14% of J.C. Penney's 1,014-store portfolio, less than 5% of total annual sales, less than 2% of earnings before interest, tax, depreciation and amortization and 0% of net income. The closures will generate annual cost savings of $200 million, mainly by saving on occupancy, payroll, home office support, corporate administration and other store-related expenses, the company said.

Dive Insight:

The planned store closures represent an effort to trim costs, leverage lucrative real estate value from a Buena Park, CA supply chain facility and better position the discount department store “to effectively compete against the growing threat of online retailers,” J.C. Penney CEO Marvin Ellison said in a statement earlier this year.

It's a bold step, but a necessary one, according to GlobalData Retail Managing Director Neil Saunders. “The blunt truth is that from a financial standpoint, some of these stores are just not working and future investment in them cannot be justified,” Saunders said in a note emailed to Retail Dive. “In our view, this fairly aggressive action is sensible. At a stroke it will improve JCP’s same-store sales numbers as these outlets are the ones dragging down the company’s performance. It will also allow the group to direct capital and resources to the stores which have the best prospects of delivering profitable growth. Admittedly, there will be a short term impact on the bottom line from lease termination and staff severance costs, which we expect to hit during the first half of the upcoming fiscal year.”

Ellison said that limiting J.C. Penney's footprint to only its top-performing physical stores can provide a competitive advantage for the retailer. ”During the year, it became evident the stores that could fully execute the company's growth initiatives of beauty, home refresh and special sizes generated significantly higher sales, and a more vibrant in-store shopping environment," he said. "We believe the relevance of our brick-and-mortar portfolio will be driven by the implementation of these initiatives consistently to a larger percent of our stores. Therefore, our decision to close stores will allow us to raise the overall brand standard of the company and allocate capital more efficiently.”

The plan now is to build in flexibility to take advantage of renewed enthusiasm for the stores from shoppers, who began flocking to the marked stores even before their closing sales had commenced. But it doesn’t sound like the stores will get more than a temporary reprieve: While the closures will be postponed, there’s no indication that any will be canceled.

The band-aid will eventually need to be ripped off. A stronger physical store base, which will allow Penney to focus on areas of needed improvement, will be the end result, Saunders said. “With a slimmed-down store portfolio, JCP will be able to focus on making its remaining stores more of a destination. This is essential as while progress has been made on categories like home, other departments still require attention,” he said. “Foremost among these is womenswear, where JCP — like many other players — is still suffering. This is disappointing, especially given the success JCP has had in driving female traffic to its stores from the Sephora [beauty] concessions. In our view, JCP needs to thin out its clothing assortment and make the section easier to shop.”

J.C. Penney nevertheless turned a profit in the fourth quarter, supported by strong sales in home, its Sephora beauty concessions, salons and fine jewelry. Profit climbed to $192 million, or 61 cents per share, up from a loss of $131 million, or 43 cents per share, in the year-ago period. Q4 net sales dropped 0.9% to $3.96 billion from $4 billion a year ago, while same-store sales fell 0.7%. Thompson Reuters analysts had anticipated profit of 61 cents per share and a sales decline of 0.4% to $3.98 billion.

The positive earnings report is no small feat in this retail environment, especially compared to struggling rivals like Macy’s and Kohl’s and considering that the results are coming off Penney's relatively strong performance in recent quarters, according to Saunders. Though the retailer saw a sales decline, the real story is in its profits.

“In our view, this alone serves as evidence that Marvin Ellison’s turnaround plan is delivering and that JCP is finally getting its house in order,” Saunders said. Even so, gross margins were hit by discounts, but were mitigated by e-commerce growth and sales of major appliances, a space the retailer re-entered last year. Q4 gross margin was 33.1% of sales, a 100-basis point decline compared to the same period last year, the company said.