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Zales urges support for deal with Signet Jewelers

BY Marianne Wilson

Dallas — Zale Corp. on Thursday restated its support for Signet Jewelers Ltd.’s $1 billion acquisition offer, urging shareholders to support the deal despite opposition from a large investor. The deal, under which Zale stockholders would receive $21.00 per share in cash, has been unanimously approved by the Zale board of directors.

Zale’s investor TIG Advisors LLC has called the deal "grossly unfair," saying the jewelry retailers should be able to get $28.60 a share in cash and stock.

In a statement on Thursday, Zale said there is “significant risk and uncertainty” to its own turnaound plan, which was designed as a stretch plan to challenge management if the chain were it to remain independent.

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Resurgent JCP reports surprisingly strong sales

BY CSA STAFF

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.

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Five Lessons Learned from the Winter of 2013-2014

BY CSA STAFF

By Evan Gold, VP of client services, Planalytics

The winter of 2014 brought record cold and snow throughout North America and its impact on business and consumer spending were widespread and significant. How impactful was it? Well, for the S&P 500 companies, the word “weather” was mentioned in almost 200 earnings calls from January through March, which is a 81% increase compared to last year.

As retailers look back on this past winter, there are several lessons to be learned, lessons that can and should to be applied to winter 2014-15 plans: The lessons are just a few tips to help retailers “weatherize” their businesses to improve how they manage through winter weather volatility.

1. It ain’t over ’til it’s over

While Christmas falls on the same date each year, Mother Nature doesn’t always follow a traditional calendar. Most retailers are setup for spring by February or March, but this year cold temperatures and snowfall lingered around in key markets, particularly in the Northeast and Midwest. The reality is spring doesn’t come early (or “on time”) every year, so companies that can match the extra end-of-season inventories with markets where “need based” purchases will be extended can gain incremental sales and end the season clean from an inventory perspective.

2. You can have too much of a good thing

While cold and snow enabled many seasonal categories to have a record breaking winter, the extreme conditions caused people to hibernate for an extended period of time. Unfortunately, from a foot traffic perspective, the most impactful days likely saw a drop in store traffic and sales as consumers (and employees) could simply not get out to the stores. As businesses think about next season, there are several strategies to employ to mitigate these “lost” days:

  • First, plan for an increase BEFORE the event as well as after the event. Loading in inventory on the forecast of snow and cold is critical to meet consumer demand regardless of how the weather actually materializes.
  • Second, businesses can message to their consumers in advance of major weather events. A simple activity such as sending a weather-relevant email to customers with a focus of key seasonal items helps ensure that customers will come to your business when they are purchasing to need.
  • Third, businesses should de-weatherize their historical sales so they plan from a weather neutral baseline going forward.

3. Media drives demand more than the actual weather

As we live in a world of “constant connectivity”, there is continuous access to information. From a weather perspective, consumers get their local forecast on multiple device and media outlets. Weather is one of the most local items to each person and therefore, it’s typically the first thing people check on when they wake up in the morning, and one of the last things they look at before going to bed.

From a business perspective, consumers often make purchasing decisions based on the forecast of weather, rather than the actual weather that occurs. Therefore, if the forecast calls for six inches of snow in Chicago, many consumers buy winterwear, shovels, etc., in anticipation of snow. How much snow actually falls is almost immaterial from a business perspective.

4. Two inches of snow in Albany, New York, is not the same two Inches of snow in Atlanta

Consumers are acclimated to the environments they live in. A forecast of two inches of snow in January in Albany, New York is hardly newsworthy, while the same forecast in Atlanta had schools closed, transport centers shut down, and consumers gearing up to be housebound. Having a clear understanding of weather’s impact on consumers on a market-by-market basis will help determine an actionable plan for your business.

5. The hangover effect is real

While markets that experienced a record cold and snow-filled winter should not expect to have as extreme conditions next winter, there is a “hangover effect” for the home center space that is real. Analysis of historical spending patterns shows that the forecast of the first winter “event” in the season following an active season drives significant demand for seasonal products.

Those consumers who decided to forego a snow thrower this past winter are more likely to make a purchase during an early-season snowfall next season, regardless of the accumulation amounts. Therefore, businesses should expect a nice spike in pre-season and early season demand for snow removal items.

Planalytics is the pioneer and premier provider of business weather intelligence, bringing measurable benefits to clients in the form of higher sales, improved margins and/or greater market share. Planalytics incorporates advanced consumer demand analytics and business expertise to weatherize businesses for maximum profitability. Learn more at Planalytics.com.


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