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October 9, 2014
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$JCP News: 5 Things Wall Street Completely Missed on J.C. Penney’s Future

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NEW YORK (TheStreet) –a J.C. Penney spent an entire day unwrapping a new store design and a path to profits in three years. Yet, the stock tanked. Did Wall Street miss something?
Shares of the Plano, Texas-based retailer were routed 10.8% on Wednesdayaas CFO Ed Record lowered third-quarter same-store sales guidance. The company now expects same-store sales to increase by a "low single-digit percentage" for the third-quarter, down from its previous forecast of mid-single-digit growth. Further, as part of its three-year financial projections shared at the event, J.C. Penney outlined a 36.5% gross margin, which is below the company’s historical 37% to 39% range. Record did admit the gross margin outlook was on the "conservative" side.
Guidance for third-quarter gross margins was reiterated, as was all holiday quarter guidance. Importantly, J.C. Penney continued to anticipate ending the year with $2.1 billion in total liquidity. a Must Read: J.C. Penney’s Future is About to be Shared with the Entire World a Investorsatook away from the commentary thataa sluggish back-to-school season will equate to aaless than festiveaholiday season, and that guidance may prove too optimistic.
What went missing in the firestorm regarding the company’sameekathird-quarter outlook was the spirit of the company’s first analyst day in over two years. The company sought toaprovide insight on new merchandising initiativesadesigned to win market share from fast-fashion retailers Zara, Forever 21, and Uniqlo, and to better compete with Macy’s . J.C. Penney’s range of merchandise initiatives will also likely continue to siphonamarket share fromabeleaguered competitoraSears .
Here is what Wall Street missed. a Must Read: Inside Nike’s Sports Research Lab: A ‘Sweating’ Mannequin Named Hal Millennial and Youth Movement
About 50% of J.C. Penney’s business comes from sales of men’s and women’s clothing. Driving that number are J.C. Penney’s high-margin, private-label brands such as St. John’s Bay, J. Ferrar, and Xersion. J.C. Penney’s fashion show at the eventaunveiled hosts of new, fashionable takes on apparelafor millennial and youth, the same groups currently obsessed with everything Zara, Forever 21, Uniqlo, and H&M put on the sales floor.
Notably, J.C. Penney’s activewear line Xersion was visually upgraded in the attemptato capture business in the hot athletic apparel market being dominated by Nike and Under Armour . Upgraded Store Environments
J.C. Penney’s chief merchant Liz Sweeney noted that the presentation of women’s handbags in the store was "insufficient," characterized by merchandise boringly sitting on racks. That will start to change in 2015 as J.C. Penney creates new shopping environmentsafor handbags, footwear and watches. These new environments will feature improved fixtures, tables, mannequins and layouts.
Pictured here is the company’s upgradedawatch section. a Must Read: Dunkin’ Donuts has Plans to Add a Jolt to Slowing Sales
Shops in Shops J.C. Penney Chairman and CEO Mike Ullman mentioned the importance of "exclusive attractions" that give consumers "reasons to come to J.C. Penney." The company shared at the event that 160 more Disney ashops will be opened soon, bringing the total to 650, or in 60% of the store base. Sales at cosmetics brand Sephora have increased by a "double-digit" percentage in 2014 according to J.C. Penney. The brand is now expected to be in more stores going forward than its current 500. Further, older Sephora locations in J.C. Penney are being expanded by up to 60%.
In a new partnership with Hallmark, a shop will open inaJ.C. Penney’sahome department in 2015.
Ship From Store
Now available in 50 J.C. Penney stores, online customers may have merchandise shipped from a physical store. The programis being expanded in 2015. According to J.C. Penney’s chief customer officer Mike Rodgers, ship from store will be available in the "right number of stores." Once that program is completely rolled out, J.C. Penney hinted at a same-day delivery service.
J.C. Penney is behind Macy’s in ship from store and same-day delivery. Macy’s offers ship from store in all 800 plus stores as of the spring of this year. The company hasaalready begun testing same-day deliver in partnership with logistics companies.
Store Closures
Although J.C. Penney did not provide a specific number of store closures as many on the Street expected, two comments from executives did hint that an announcement could be forthcoming in early 2015. Rodgers made mention that ship from store would be in the "right number of stores," while Ullman noted that the store base size was "roughly" where it needs to be.
At the time of publication, the author held no positions in any of the stocks mentions. This article is commentary from an outside contributor, separate from TheStreet’s news coverage.

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