J.C. Penney remains profitable, could open new stores

Dive Brief:

J.C. Penney’s Q4 net sales dropped 5.9% year over year to $2.3 billion, as net income in the quarter fell 8.9% to $41 million, according to filings with the Securities and Exchange Commission.
For the full year, net sales, not including credit cards, fell 8.9% to $6.9 billion, as net income plunged 86.4% from last year’s $221 million. Consolidated EBITDA dropped 39.3% to $316 million.
This week, Simon Property Group CEO David Simon said that J.C. Penney could benefit from opening new stores, in light of its ongoing profitability. The mall REIT co-owns the retailer with Brookfield Properties and Authentic Brands Group.

Dive Insight:

Over the holidays, J.C. Penney’s top line didn’t perform quite as well as other middle-market department stores — Macy’s sales fell 1.7% and Kohl’s fell 1.1%, for example.

“Customers continue to deal with economic uncertainty and are looking for value more than ever. We remain optimistic about a second half recovery and are well-positioned to continue delivering value to our customers throughout the year as that happens,” a J.C. Penney spokesperson said by email. “At the same time, we are carefully managing risk to ensure the stability of our business if the retail environment is challenged in the balance of 2024.”

Despite its sales and profit declines, the company remains in the black. Moreover, the retailer’s sales declines are lessening, GlobalData Managing Director Neil Saunders said by email.

“The final quarter was the best of the year for JCPenney, which is a small crumb of comfort,” he said. “It might also be an early indication that some of the changes the management team are making are taking effect. However, we will need to see more quarters before the strategy can be called a success.”

Last summer, the retailer announced a $1 billion investment in upgrading its tech, stores and customer experience, while earlier this year it unveiled an overhaul of its loyalty program. On Friday, J.C. Penney’s spokesperson said that over the past year the retailer has also “increased focus on customer acquisition and continue to reap the benefits of trend changes in in-store traffic.”

Thanks in part to higher costs and lower sales, though, profits are “very weak,” Saunders said. “JCPenney is funding its own investments so some erosion on the bottom line is to be expected, but this needs to start pushing up the sales line if the investment is to generate a positive return.”

However, because J.C. Penney is no longer a public company, in the short term it doesn’t need to focus too much on the bottom line, he said.

“As a private company, JCP has the luxury of time and not having to drive profit growth,” he said. “As long as the company is broadly profitable, its owners will take a long term view.”

In a conference call with analysts Monday, David Simon also noted the advantage of being out of the glare of Wall Street, including the ability to think longer term, and flagged its enduring profitability, even at lower-volume stores.

“Penney is able to produce positive EBITDA even if there's not high sales,” he said. While some underperforming Penney stores may close, the retailer’s overall performance could benefit more from the opening of new stores than from closures, he also said.

In March, J.C. Penney opened a new location at the Willowbrook Mall in Wayne, New Jersey, in the space formerly occupied by Lord & Taylor, though that was balanced by the closure of the Penney store at the mall just across the street.

The company didn’t address specifics in Thursday’s financial report or respond to questions about David Simon’s comments regarding the potential of adding stores. But in an emailed statement, a spokesperson noted that it will complete 200 store refreshes by the end of the year and continue to “make improvements driving speed and cost efficiency in our supply chain.”

The spokesperson also cited a “strong liquidity and clean inventory position, which is key to ensuring we drive forward with our self-funded reinvestment commitment, as well as to handle any headwinds throughout the year.”