Skip to Content

J.C. Penney’s tough slog ahead

J.C. Penney CEO Myron E. Ullman, III
J.C. Penney CEO Myron E. Ullman, III
J.C. Penney CEO Myron E. Ullman, III Photo: Charles Eshelman/Getty Images

J.C. Penney’s sales may be recovering gradually after the department store’s disastrous experiment with trendier offerings and store displays in 2012. But they are rebounding too slowly for Wall Street’s taste.

J.C. Penney raised investor concerns about its turnaround at its analyst day in New York on Wednesday by lowering its third-quarter comparable sales forecast after a disappointing September. It’s shares (JCP) fell 11%.

The revised forecast served as a reminder of how fragile Penney’s recovery is from its failed reinvention two years ago. That effort was overseen by ex-CEO Ron Johnson, a former Apple retail whiz who jettisoned discounts and brought in trendier and pricier offerings like Michael Graves home goods.

At the same time, he dumped billion dollar in-house brands like St. John’s Bay, alienating long time shoppers without winning new ones. That failed experiment cost the company $4 billion in sales, or a quarter of its business, in 2012 alone.

Penney on Wednesday announced a series of initiatives designed to lift sales to $14.5 billion annually by 2017. That’s an improvement over the $12.4 billion analysts expect for the fiscal year ending in February. But that is far below the $17.3 billion in annual sales before Johnson’s fiasco. (The all time high was $19.9 billion in 2006.)

In August, the retailer had said it expected comparable sales to rise by a mid-single digit percentage this quarter. But it now expects growth to be at a low single digit percentage. That is anemic when one considers sales fell 30% over two years.

Penney expects comparable sales growth through 2017 at a mid-single digit percentage: back of the envelope math suggests that at that rate, it will take Penney 6 to 8 years or so to recover sales lost during Johnson’s 14 month tenure, which ended in April 2013.

The next chapter of Penney’s recovery hinges on the “center core,” or the most highly trafficked part of store. The plan entails revamping departments that sell shoes and handbags, which are big attractions for shoppers. The retailer is expanding the space allocated to women’s shoes by 30% and will separate the men’s footwear into its own area in 2015.

The company is also looking to capitalize on the success of the Sephora cosmetics shops inside its stores. More Sephora shops are planned as is enlarging existing ones. Sephora boutiques generate about $600 per square foot per year, more than three times the Penney store average.

Penney will also open Disney (DIS) boutiques at another 116 locations next year, bringing the total number of Penney stores housing a Disney shop to 681. It is also going to roll out Hallmark gift and card boutiques.

As part of its planned growth, Penney expects to increase online sales by $800 million through an improved digital strategy, including offering in-store pickup of orders placed online and new mobile apps.

Mike Ullman, Penney’s CEO, told Fortune that Penney did not need to close stores, despite the lower sales compared to three years ago. The vast majority contribute positively to results, he insisted. And while Penney may have picked up a bit of business from struggling rival Sears, Ullman warned Wall Street that the overall climate is still tough for Penney’s shoppers because their income is not growing quickly enough.

“J.C. Penney is in a far stronger position than it was when we began our turnaround 18 months ago,” said Ullman, who came back as CEO in April 2013. But there is still a lot of work for Penney he hastened to add.