Decline in same-store sales
JCPenney’s (JCP) same-store sales declined by 0.4% in 1Q16 ended April 30, 2016. This marked the first decline in JCPenney’s same-store sales in ten quarters. In the company’s 1Q16 conference call, CEO Marvin R. Ellison stated that an excessive reliance on apparel hurt the company in certain instances during 1Q16, particularly when weather patterns were not favorable for apparel sales. JCPenney is looking for sales growth in several categories beyond apparel, including its Sephora beauty business and home merchandise.
Growth in the Sephora business
The Sephora beauty stores inside JCPenney stores have been one of the company’s key growth drivers in recent times. Sephora is owned by the luxury group LVMH Moët Hennessy Louis Vuitton (LVMUY) (MC.PA). JCPenney opened 28 new Sephora locations at the end of April, bringing the total number of Sephora locations to 546. In the company’s 1Q16 conference call, the CEO stated that the first few weeks of the selling season in the new locations exceeded the company’s expectations.
JCPenney is also adding new brands in its Sephora shops. Some of the brands that the company launched in its Sephora locations in 1Q16 include Origins, L’Occitane, Marc Jacobs, Fresh, and Bumble and bumble. JCPenney is scheduled to open another 30 Sephora locations in mid-June and two new locations later in 2016. The iShares U.S. Consumer Services ETF (IYC) has a 0.1% exposure to JCPenney.
Interesting additions in the home category
JCPenney aims to enhance its home business by offering a wide choice of major appliances, window treatments, furniture, and flooring. On May 9, JCPenney announced that it will be adding appliance showrooms in nearly 500 of its stores. This decision followed a positive response to a pilot that the company commenced in February 2016 in 22 locations. According to the company, the average transaction was over $1,200 and the appliances business added low-single-digit same-store sales at pilot locations. JCPenney is also expanding its window treatment offering, which it believes offers a $200 million sales opportunity. The company has also entered into a partnership with Ashley’s Furniture, pursuant to which it will test 21 of Ashley’s signature collections in select stores by Memorial Day weekend. The company has also entered into an arrangement with Empire Today flooring and will test this in-store concept in two markets within the Tampa and Washington metropolitan areas. Read on to learn about the company’s 1Q16 margins.