Things took a wacky turn in the retail world this week as JCPenney reported a 6.2% same store sales increase and a huge gross margin expansion while Macy’s, Kohl’s and Walmart stumbled.
JCPenney still lost money, lots of it, during the quarter ended May 3, but total sales increased 6% to $2.8 billion. The 6.2% same store sales increase the company reported was the result of sequential improvement throughout the quarter and broad-based strength across categories. The comp increase would have been even stronger had the company employed a new method of calculating results that exclude temporary impacts it plans to use going forward. For example, certain items such as sales return estimates and liquidation sales will now be excluded from same store sales calculation. Had this methodology been applied during the first quarter, JCPenney would have reported a 7.4% comp increase rather than a 6.2% gain.
In addition to a same store sales surprise, gross margins expanded by 230 basis points to 33.1% of sales from 30.8% last year despite the negative effects of clearance activity.
"We are very pleased to report that JCPenney delivered its second consecutive quarter of comparable store sales growth, as well as continued gross margin improvement. It is clear that our efforts to re-merchandise many areas of the store and revamp our messaging to the customer are taking hold,” said JCPenney CEO Myron Ullman. “Despite a difficult retail environment, our strong performance during the Easter holiday period and other key promotional events enabled us to deliver better than anticipated sales results. We expect to carry this momentum into the second quarter as we continue to position the company for long-term profitable growth."
Women`s and men`s apparel, home, and fine jewelry were the company`s top performing merchandise divisions in the quarter and Sephora inside JCPenney also continued its strong performance, according to the company. Geographically, all regions delivered sales gains over the same period last year with the best performance in the western and central regions of the country.
Lest anyone get carried away with the company’s performance, it is worth noting JCPenney was cycling against a prior year comp decline of 16.6% and it continues to report sizable losses. The operating loss during the first quarter was $247 million, which was roughly half the prior year loss of $486 million. A net loss of $352 million was worse than the prior year net loss of $348 million.
The other noteworthy development announced in conjunction with the release of first quarter results involved a new $2.35 billion credit facility to replace an existing $1.85 billion line of credit.
"With a solid plan in place to complete the turnaround, we are pleased with the support of our banking partners and their confidence in our ability to succeed,” Ullman said.
Looking ahead, JCPenney expect a second quarter comp increase in the mid-single digits at its 1,100 stores and significant full year gross margin improvement.