JC Penney reported its first same-store sales increase in over 2 years, with a 2 percent increase in their fiscal fourth quarter. Their recent quarterly results beat analyst estimates, sending the stock soaring upto 20 percent higher in after hours trading. This is a result of considerable efforts by JC Penney to return to its roots after former CEO Ron Johnson made radical changes to the operations of the company.
Ron Johnson eliminated JC Penney's famous coupons as well as certain brands that he deemed irrelevent to his vision of the company. The old policy of coupons were succesful because it made consumers feel smart about their purchases, and this created a degree of hype as these consumers shared their stories with other consumers. But by taking away that sense of achievment, as well as their favorite brands, Ron Johnson succefully isolated JC Penney's core customers. These changes lead to a vicious sales decline, creating fears of bankruptcy.
The failed strategy resulted in Ron Johnson being replaced by JC Penney's former CEO Myron E. "Mike" Ullman, who strived to return JC Penney to its roots. The company began repairing its relationship with customers by first airing an advertisement on mother's day apologizing for its poor decisions. It then brought back old products, brands, and the discounts that their core customers cherish.
Despite a challenging 4th quarter for retailers across the US due to poor holiday sales and severe weather conditions, JC Penney was able to have a decent quarter. It generated positive cash flow, which is essential in buying more time to complete their turnaround amid fears of liquidity constraints. It also improved its margins, which provide more ammunition for the turnaround.
However, it might be too early to assume JC Penney is "saved". This is just one good quarter, and it takes atleast a few more quarters of positive results to complete a turnaround. Furthermore, many underperforming companies have one good quarter followed by a series of bad results. However, the positive results this 4th quarter is a good start, and if JC Penney can continue to create value for its core customers and regain their trust, the potential turnaround could become a reality further down the line.
- Mathew Roy