J.C. Penney to close up to 140 stores
J.C. Penney announced on Friday its biggest number of stores closings in recent history and indicated the decision will result in it exiting some smaller markets.
Penney said it will close 130-140 stores over the next few months. That represents about 13 percent of its 1,014 stores, but Penney said the stores generate less than 5 percent of total annual sales and are unprofitable.
A full list of planned store closings will be released in mid-March after stores have been notified. Most of the stores are expected to close in the second quarter, or by the end of July.
Penney estimated the decision will result in an annual cost savings of $200 million. However, it will result in the company taking later this year a pre-tax charge of about $225 million to cover lease terminations, non-cash asset impairments and transition costs.
Penney also said Friday it is offering a voluntary early retirement program to 6,000 eligible employees across the company, including workers at its suburban Dallas headquarters. It’s also closing two distribution centers in Lakeland, Fla., and Buena Park, Calif.
It’s a deep cut for Penney, which has trimmed a number of stores annually for years but now is making a big move to return to profitability. Penney is still clawing back from its failed attempt to reinvent the department store by former CEO Ron Johnson in 2012 and 2013. Penney’s sales declined by more than $5 billion during that time and those sales haven’t come back. J.C. Penney CEO Marvin Ellison noted during a call with analysts Friday how far the company has come from 2013 “when conventional wisdom was that Penney wouldn’t survive as an ongoing company.”
The timing of the early retirement offer, which is based on age and years with the company, shouldn’t be viewed as some “desperation” move, Ellison said.
“This was done purposefully. It’s not a coincidence or an act of desperation. We just posted our first profit in years,” he said in an interview Friday. “We’ve been all about controlling costs as the home office, but this is more in line with lessening the negative impact from store closings.”
About 5,000 people work at the stores that are closing. By offering retirement to 6,000 people across the company, there will be jobs opening that full-time employees can fill, he said.
Costs and future savings will be based on the number of people who take the offer by the deadline of March 17, Penney said. Even with all its financial problems in recent years, Penney has a well-funded pension plan. It will remain that way after the early retirement offer, Penney said.
“We understand that closing stores will impact the lives of many hard working associates, which is why we have decided to initiate a voluntary early retirement program for approximately 6,000 eligible associates,” Ellison said in a statement. “By coordinating the timing of these two events, we can expect to see a net increase in hiring.”
Penney also reported its first profit since 2010, but it sales didn’t meet expectations.
Ellison said margins were hurt by promotions that weren’t adequately “data driven” but were more about just increasing sales with aggressive coupons. It was a tactical decision to drive traffic but could have been done better, Ellison said.
The company reported a fourth-quarter profit of $192 million, or 61 cents a share, versus a loss of $131 million, or 43 cents a share, a year ago. Total sales declined 0.9 percent to $3.96 billion from $4 billion last year. Same-store sales fell 0.7 percent. Analysts surveyed by Thompson Reuters expect a profit of 61 cents a share and a sales decline of 0.4 percent to $3.98 billion.
This year, including the impact of store closings, Penney said it expects to be profitable and post sales results just below or above 2016. Ellison said the company made a conservative forecast based on the uncertainty on the retail scene.
“When we look at the state of the consumer, by every measure, there are no flags for why the consumer would pull back spending. Unemployment is down and wages are up,” he said. “And we feel good about where we are going and the things we can control.”
Penney plans to open 70 more Sephora shops in its stores this year, and salons have made a strong turnaround in 2016, after being a drag for several years, Ellison said. It’s also adding kitchen and laundry major appliance departments to 100 more stores after introducing the concept last year in 500 stores. Penney is also positioning itself to take advantage of Sears’ ongoing store closings. It shares 400 malls with Sears, Ellison said.