| Research Notes: Nov 14, 2011 – JCP, ASNA |
StoreIntel |
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JC Penney (JCP)
- JCP reported its 1st quarterly loss since Q2 ’09 this morning. Total sales fell 4.8% to $3.99 billion, online sales declined 5.4% to $341 million and same-store sales dropped 1.6% compared to the company’s estimate of flat comps. The loss was largely due to restructuring charges amid early retirement packages, but adjusted operating income still fell 36% and adjusted EPS declined 47% compared to last year. Executive Chairman Myron E. (Mike) Ullman, III, said, “While our more affluent customers continued to respond well to jcpenney’s attractions, the moderate customer continues to have limited discretionary spending capability, and that was apparent during the quarter,”
- Merchandise margins declined for the 5th straight quarter on weak demand and markdowns, and the fourth quarter outlook doesn’t look much better: total sales are expected to decline 2.5% to 3.0% on flat comps & margins are once again expected to shrink. Not surprisingly, JCP’s Holiday will lag competitors: Macy’s forecast a same-store sales gain of 4-4.5% for Q4 and Kohl’s said comps will be up 2-4%.
- While there weren’t many positives to take away from Q3, we are calling out the improved selling in all cold weather merchandise categories. Also, the performance of its store-in-stores Sephora (now in 308 locations), MNG by Mango (500 locations) and Call it Spring by Aldo (505 locations) continue to perform well and we expect continued expansion of these concepts and wouldn’t be surprised to see new partner additions in 2012.
- There seems to be a major initiative taking place that will work in conjunction with the takeover of ownership of the Liz Claiborne brand. We took notice of the Kohl’s conference call during which management mentioned they are working on a new private brand initiative for 2012. We also know how successful Macy’s, H&M and Target have been with celebrity launches and we feel JCP might be ready to announce a significant new brand in both their men’s and women’s assortment in January.
- At the moment we have no indication of their new pricing strategy. Will it be everyday value? At this point in time we would expect this to be a major focus for Ron Johnson, the recently hired retail chief from Apple, and believe his team will be far more creative in this respect.
- The two major disappointments we took away from today’s conference call were 1) the 2% decline in foot traffic and 2) the 5.4% decrease in jcp.com sales. As we noted in our last research note, JCP has significantly lagged rivals Macy’s and Kohl’s in online growth over the past 5 years. Through 3 quarters of fiscal 2011, e-commerce sales have increased just 1.2% to $1.043 billion and are on track to be roughly flat at $1.5 billion for the 5th consecutive year. Contrast that with Kohl’s – e-commerce sales posted a 3-yr CAGR of 47.2% between 2007 and 2010, growing from $225 million to $717 million and are up 41.2% through the first 2 quarters of this year. Macy’s saw online sales grow 25.7% annually over the last 3 years to over $1.6 billion and have increased 39.4% through 9 months of FY 2011.
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Ascena Retail Group (ASNA)
- The early receipts of the new Holiday presentation in sportswear focuses on the traditional red and black story, with touches of shimmer in both silver and gold. Most of the shimmer woven tops were in the $34-$39 price range which marry well with their Holiday presentation of bottoms. This sportswear presentation supported a strong dress presentation as well. We felt the initial store layout of one front quadrant for Holiday was appropriate knowing how treacherous the Christmas selling period can be for a missy specialty chain.
- 2. As expected (and as we mentioned in our last note, the BOGO event of 50% off the second sweater is still running.
- We are concerned about the amount of inventory in the clearance zone. We will need to monitor this weekly to gauge the potential liability of markdowns. At this time we should just be sensitive to any inventory liabilities since most of the big-box retailers which have reported so far have seen gross margin compression in Q3. In addition, many of these same chains made mention of concerns of additional margin pressures for the fourth quarter.
- The fashion category of faux fur seemed to be selling quite well in the 4 stores we tracked, which is a positive note that fashion at the right price is working well for core Dress Barn.
- A side note from our research is to be cautious about the performance of Maruices for this quarter (Q1 FY 2012): they are going against a +9% comp from last year’s quarter and we are wary about them beating their sales guidance…more on this to follow.
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