Penney Presents Five-Year Plan

Apr 27, 2010 10:31 PM  By

J.C. Penney last week outlined a five-year operational and financial plan, focusing on top-line growth and expanding market share. The 2010-2014 plan, unveiled at an analyst/investor meeting, is the next step of a long-range plan Penney launched in 2005.

The general merchant’s updated long-range goals are:

- To be its customers’ favorite destination for stylish apparel, accessories and home fashion, inspiring existing customers to shop more with the retailer and accelerating growth among a younger (25-44-year-old) customer base

- To consistently delight customers with its merchandise and services that create a sense of discovery and excitement at each shopping visit

- To be seen as the preferred choice for a retail career for sales associates by continuing to build a company culture that fosters innovation and teamwork

- Industry growth leadership for shareholders, investing resources that support sales growth and enhance shareholder value

J.C. Penney also provided financial performance targets for the five-year period ending in 2014. By the end of fiscal 2014, the company expects total sales to increase over $5 billion to reach about $23 billion. This is expected to be driven primarily by same-store sales growth.

Gross margin is expected to increase to about 40% of sales, but total operating expenses should decline as a percent of sales, and operating income is expected to steadily increase over the period and hover around 9% or 10% by 2014.

The company’s cash flow is expected to increase from $200 million in 2010 to $500 million in 2014.

Capital expenditure levels are expected to increase over this period to include new store growth as the commercial real estate market and consumer economy recover. But in the early years of the plan, Penney will focus capital expenditures on ongoing existing store renovation and the continued rollout of the Sephora makeup shops inside J.C. Penney stores.

Penney’s plan makes sense for several reasons, says Neil Stern, a retail analyst and senior partner for retail consultancy McMillan Doolittle. For one, the consumer should be receptive again as we emerge from the recession.

Also, Penney has added a number of assets—such as the Liz Claiborne and Mango brands—that need to be marketed. The retailer still needs younger consumers through the door, Stern says, and aggressive marketing efforts will help. “It feels like they need to do this to reignite what has been a very successful turnaround to date,” he adds.