J.C. Penney rallies with solid Q2, suggesting turnaround
Plano, Texas — J.C. Penney answered Wall Street questions about whether or not the struggling department store retailer could stage a comeback — by posting better-than-expected profit and revenue in the second quarter.
Analysts have been awaiting results, many saying that if Penney could manage to beat projected same-store sales or cut its forecast deficit, it could become an analyst darling. Penney started to regain the trust of a few watchers earlier this year when it reported a first-quarter same-store sales increase of 6.2%, trumping the 4.1% gain that had been projected.
For the quarter ended Aug. 2, Penney reported a same-store sales rise of 6%, edging the projected 5.8% gain. Revenue improved for the third consecutive quarter, to $2.8 billion from $2.66 billion in the year-ago period. Wall Street expected revenue of $2.79 billion. E-commerce was a big quarterly winner, improving 16.7% year-over-year to $249 million.
Penney narrowed its year-ago loss of $586 million to $172 million this year.
Penney has faced an uphill battle, trying to rebound from former CEO Ron Johnson’s overhaul efforts that resulted in plummeting sales, internal splintering, and 10 consecutive quarters of missed revenue projections. Thursday’s report has lifted Wall Street spirits.
"Our turnaround initiatives continue to produce improved financial results," CEO Myron Ullman said in a statement. "In the second quarter, we gained additional market share while significantly increasing gross margin in a highly competitive promotional environment."
Penney said it expects sales to rise in the mid-single digits in the current quarter and backed its outlook for the year. It expects full-year same-store sales growth in the mid-single digits.
No surprises for Nordstrom in second quarter
Nordstrom’s second quarter earnings were in line with its expectations. The results come two weeks after the company said it was acquiring Trunk Club, a men’s personalized clothing service, for $350 million.
Profit for the quarter remained flat compared to last year’s second quarter at $183 million. Net sales for the quarter were $3.3 billion, a 6.2% increase from $3.1 billion in the prior-year quarter. Comparable sales increased 3.3%.
Nordstrom Rack net sales increased $114 million, or 18%, compared with the same period in fiscal 2013, reflecting incremental volume from existing stores and the impact of 25 store openings since the second quarter of fiscal 2013. Nordstrom Rack comparable sales increased 4%.
The Nordstrom Rewards loyalty program continues to contribute to overall results, with members shopping more frequently and spending more on average than non-members. The company opened nearly 370,000 new accounts in the second quarter, an increase of 18% compared with the same period last year. With 4.1 million active members, sales from members in the second quarter increased 11% in the second quarter and represented 44% of sales, from 42% for the same period last year.
Nordstrom entered into an agreement to acquire Trunk Club July 31. Founded in 2009, Trunk Club delivers a stylist service that combines the convenience of online with a high-touch, personalized shopping experience. Trunk Club is a high-growth company and expects to achieve operational profitability and more than double its annual sales to more than $100 million. The company believes this acquisition represents a natural extension of its core business, aligns with its strategic priorities around a relevant customer experience and accelerates entry into this fast-growing market.
Trunk Club will operate as an independent, wholly owned subsidiary and will be managed by its current leadership. The transaction is expected to close in the third quarter, subject to closing conditions including customary regulatory and shareholder approvals.
Nordstrom plans to open three full-line stores (The Woodlands, Texas; Calgary, Canada and Jacksonville, Florida) later this year. To date in fiscal 2014, the company opened 11 Nordstrom Rack stores and plans to open 16 additional stores during the remainder of the year. In the second quarter of 2014, the company opened a Nordstrom Rack store in Manhasset, New York.
Study: Department stores have best growth opportunity in Canada
Los Angeles – The Canadian market offers an opportunity for U.S. retailers to expand and to gain experience operating in an international market. According to a new study from market research firm IbisWorld, the U.S. retail segment best suited for expansion into Canada is department stores, followed by men’s clothing stores.
In order, the remainder of the top five U.S. retail categories primed for expansion into Canada are shoe stores, auto parts stores, and lingerie, swim and bridal stores. According to IbisWorld analysis, U.S. industries best suited to expand into Canada are characterized by slow growth and a high level of market share concentration, with few dominant major players generating the majority of industry revenue. In contrast, Canadian industries primed for entry tend to be fragmented and exhibit low levels of market share concentration; these industries are especially appealing if they consistently post revenue growth.
IbisWorld also advises that the Canadian retail sector has exhibited rapid growth in the past five years. Consumers have remained financially confident, with plenty of cash on hand for discretionary purchases. Most are familiar with U.S. stores and frequently cross the border to shop for a broader selection of brands. Furthermore, the Canadian retail sector is a less-crowded field with fewer dominant players.