J.C.Penney (JCP) optimistic and undeterred by current negative holiday spending forecast.

Implications: With the B.T.S. boost in sales, JCP believes that their assortment is trend and brand right to mitigate the forecasted tough holiday season. JCP, along with their competition, Kohl’s. Target and the others feel that results for the holiday season may indeed be in consistent with original forecast and plans but given their vast improvement in operating and merchandising they are rightfully bullish on their long term growth and financials

Analysis:  

The 2^nd Quarter sales were up 3.6% with an increase of 1.9% in comp. sales. The response to their fashion assortment in women’s was very good helping them achieve an overall positive result. With the initial reads for Sephora in the 35 test stores also being strong the company wide rollout bodes well for top line sales in the upcoming quarters.

With the improved inventory management, markdown optimization software and the B.T.S. calendar shift into the 2^nd quarter operating margins improved 80 basis points to 7.2% for the quarter. With the continuation of SG&A and fixed costs being amortized over the increasing sales base this improvement in operating income should be more than sustainable.

With plans to open 175-200 off mall locations by the end of FY ’09 JCP is further insulating themselves from the erosion in mall traffic. With the kick off of the “American Living” life style concept by Ralph Lauren along with their other improvements in both their private label and initiatives such as the fore mentioned Sephora partnership, JCP is further positioning themselves as a destination store reducing their reliance on mall based traffic.

JCP indeed has taken advantage of the distractions that Macy’s and SHLD have experienced in their recent consolidation efforts but at the same time Kohl’s and Target have been keeping pace and out shining JCP in many areas so the competition for this consumer is intense. This is going to make it difficult for JCP to dominate in this sector. MR. Ullman and his management team are going to have to continue their diligence in all areas which may prove to be a challenge.

We all know the difficult competitive landscape despite negative or positive macro economic environments so it is important that JCP continue making strategic partnerships, improve operating efficiencies and constantly tweak the assortment. It is a 365 day/year task which can prove quite difficult. The future looks bright for JCP but it also looks good for Kohl’s and Target. The question is: Are there enough consumer dollars to sustain the 3 big players and any new competition on the horizon?