For the past two years, conventional wisdom was that J.C. Penney’s (JCP) brief and disastrous flirtation with hipness under former Apple executive Ron Johnson had set it back irreversibly against rivals like Macy’s (M).
But on Wednesday, the department store reported a 3.4% increase in comparable sales for the quarter ending May 2. It easily outperformed Macy’s, which earlier in the day, reported a small quarterly decline.
J.C. Penney’s results suggest that it is winning back some of the business it lost to Macy’s, it bigger and more successful challenger. Macy’s blamed some its problems on the cold winter, although that excuse rang follow because Penney had to deal with the same weather and the two companies co-anchor 400 U.S. malls together.
What’s more, Penney felt so good about its first-quarter numbers that it raised its full year sales outlook. Comparable sales, which exclude newly opened or closed stores, are now expected to be up 4% to 5% rather than an earlier 3-4% range.
Since its failed effort to go upmarket under ex-CEO Johnson in 2012 and 2013, Penney has been fixing its business by bringing back popular in-house brands like St. John’s Bay that offer higher profit margins, fixing its e-commerce business, and tweaking its homes goods selection. In March, Penney sent out a home goods catalog, its first such mailing in years, to promote its new approach to good effect, and said it would send another this fall.
Penney also said it would soon start selling Sephora cosmetics products on its website. The 500 Sephora shops located in Penney stores have been a hit.
The result of the company’s efforts has been a gross profit margin that is on the mend, rising 3.3 points to 36.4 % of sales last quarter. That’s still short of the 39.3% three years ago, before its failed reinvention, but good enough to prompt Penney to also raise its profit margin forecast this year.
“We are focused on taking back market share and restoring the profitability of our business,” Penney CEO Mike Ullman told analysts. “We are switching gears, going on the offensive to gain back share and grow our business profitably.”
Ullman, who was CEO from 2004 to 2011 before being replaced by Johnson, Apple’s retail guru, returned two years ago to put out one of the biggest corporate infernos in retail history. Penney president Marvin Ellison, a former Home Depot executive (HD), will assume the CEO job in August.
Penney said that comparable sales grew in each region of the country, and that apparel led the charge. In contrast, Macy’s reported its clothing business was challenging.
In the last few years, Macy’s has downplayed the benefit of Penney’s woes, preferring to focus on its various initiatives. Lately, Macy’s has decided to launch a discount store chain this year and is looking at building some retail stores abroad.
But if Macy’s got some lift from Penney’s problems, it follows that it would also feel the effects of Penney’s resurgence.
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