NEW YORK — The second day of JCPenney’s launch event in New York City revealed the retailer’s long-term financial plans to generate profit and shareholder value while reinventing itself.
COO Mike Kramer outlined the company's financial outlook, including an enhanced profit formula derived from the simplified business model unveiled the day before, based on a new three-tier pricing strategy, newly organized promotions and an overhaul of the merchandise assortment.
"The blueprint Ron (Johnson) and Michael (Francis) outlined yesterday dramatically simplifies our operations and significantly improves the company's ability to flow margins through to the bottom line,” said Kramer. “As we transform the business model, our teams are committed to improving sales productivity in our stores, generating 40% or better gross margins, while lowering expenses to industry-leading levels.”
Kramer said the company is targeting $900 million in expense cuts to be completed over the first two years of its transformation, ultimately lowering expenses below 30% of sales in two years. Kramer said he expects to achieve an expense run rate of 27% by the end of the transformation in 2015. The savings will come primarily from stores, advertising and the operations in the company's home office.
During his presentation, Kramer revealed plans to fund the transformation of J.C. Penney's stores through cash from operations, beginning with $800 million in capital expenditures in fiscal year 2012.