|JCPENNEY REPORTS FIRST QUARTER 2017 FINANCIAL RESULTS AND REAFFIRMS FULL YEAR GUIDANCE|
Gross Margin Increases 10 basis points
Company Taking Actions to Strengthen Balance Sheet Through Planned Retirement of $520 million in Outstanding Debt
PLANO, Texas - (May 12, 2017) - J. C. Penney Company, Inc. (NYSE: JCP) today announced financial results for its fiscal first quarter ended Apr. 29, 2017.
Marvin R. Ellison, Chairman and Chief Executive Officer said, "We continue to make encouraging progress in the Company's competitive and financial position despite our top-line performance during the first quarter. While February was a very challenging month for JCPenney and broader retail, we are pleased with our comp store sales for the combined March and April period, which improved significantly versus February. The recent sales trends, combined with the improvement in women's apparel and our growth initiatives led by Sephora inside JCPenney, jcp.com and major appliances, provide us with the confidence to maintain our sales guidance for the full year. Additionally, our investment in pricing and merchandising systems allowed us to deliver a 10 basis point increase in gross margin over last year, in light of the growth in appliances and e-commerce. Also, through our de-leveraging efforts and improved financial condition, we earned yet another credit rating upgrade this quarter. Our teams remain committed to executing on our strategic growth initiatives, and we are confident in our ability to drive sustainable growth and long-term profitability for JCPenney."
The Company reported net sales of $2.7 billion in the first quarter of 2017 compared to $2.8 billion last year. Comparable store sales were (3.5) % for the quarter.
Home, Sephora, Fine Jewelry and Salon all comped positively, and were the Company's top performing divisions during the quarter. Geographically, the Southwest and Southeast were the best performing regions of the country.
For the first quarter, gross margin was 36.3 % of sales, an increase of 10 basis points compared to the first quarter last year. Gross margin was positively impacted by improved selling margins throughout the quarter, which was partially offset by the continued growth in the Company's online and major appliance businesses.
SG&A expenses for the quarter declined $29 million to $843 million, or 31.2 % of sales. These savings were primarily driven by lower marketing, store controllable costs and incentive compensation.
For the first quarter, the Company's net loss was $180 million, or ($0.58) per share. This includes the following items:
Adjusted net income improved $116 million, or $0.38 per share, to $0.06 per share for the first quarter this year compared to a net loss of $97 million, or ($0.32) per share, last year. Adjusted net income for the first quarter of 2017 and 2016 includes the sale of operating assets, which totaled $117 million and $8 million, respectively. A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.
EBITDA was $40 million for the first quarter 2017 compared to $176 million for the same period last year. Adjusted EBITDA for the quarter improved $102 million or 67 % to $255 million compared to the first quarter last year.
Inventory at the end of the first quarter 2017 was $2.95 billion, an increase of 0.8 % compared to the end of the first quarter last year. Approximately 300 basis points of the increase was driven by floor samples for appliance showrooms and higher inventory levels to support the Company's continued investment in new Sephora shops.
The Company completed the sale of its Buena Park distribution facility in March for a net sales price of approximately $131 million and recorded a net gain of approximately $111 million in the first quarter associated with the sale of this facility.
Cash and cash equivalents at the end of the first quarter were $363 million. During the quarter, the Company utilized available cash on hand to retire $220 million of outstanding bonds that matured in April. As previously announced earlier this week, the Company launched cash tender offers to purchase up to $300 million aggregate principal amount on portions of its 2018 and 2019 outstanding bonds. The Company ended the quarter with a liquidity position of approximately $2.4 billion.
In March, Standard & Poor's Rating Services upgraded the Company's credit rating one notch to B+ and affirmed their positive outlook on the Company.
The Company reaffirmed its 2017 full year guidance. As a reminder, fiscal 2017 is a 53-week year which has been incorporated into the full year guidance, with the exception of comparable store sales which are calculated on comparable 52-week basis. The following guidance also includes the expected impact of the Company's previously announced store closures. The fiscal 2017 full year guidance is reaffirmed as follows:
1 A reconciliation of non-GAAP forward-looking projections to GAAP financial measures is not available as the nature or amount of potential adjustments, which may be significant, cannot be determined at this time.
First Quarter Earnings Conference Call Details
Telephone playback will be available for seven days beginning approximately two hours after the conclusion of the conference call by dialing (855) 859-2056, or (404) 537-3406 for international callers, and referencing 15893982 conference ID.
Investors and others should note that we currently announce material information using SEC filings, press releases, public conference calls and webcasts. In the future, we will continue to use these channels to distribute material information about the Company and may also utilize our website and/or various social media to communicate important information about the Company, key personnel, new brands and services, trends, new marketing campaigns, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed material; therefore, we encourage investors, the media, our customers, business partners and others interested in our Company to review the information we post on our website as well as the following social media channels:
Any updates to the list of social media channels we may use to communicate material information will be posted on the Investor Relations page of the Company's website at www.jcpenney.com.
J. C. PENNEY COMPANY, INC.
SUMMARY BALANCE SHEETS
SUMMARY STATEMENTS OF CASH FLOWS
Reconciliation of Non-GAAP Financial Measures
We report our financial information in accordance with generally accepted accounting principles in the United States (GAAP). However, we present certain financial measures and ratios identified as non-GAAP under the rules of the Securities and Exchange Commission (SEC) to assess our results. We believe the presentation of these non-GAAP financial measures and ratios is useful in order to better understand our financial performance as well as to facilitate the comparison of our results to the results of our peer companies. In addition, management uses these non-GAAP financial measures and ratios to assess the results of our operations. It is important to view non-GAAP financial measures in addition to, rather than as a substitute for, those measures and ratios prepared in accordance with GAAP. We have provided reconciliations of the most directly comparable GAAP measures to our non-GAAP financial measures presented.
The following non-GAAP financial measures are adjusted to exclude restructuring and management transition charges, the impact of our qualified defined benefit pension plan (Primary Pension Plan), the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from our joint venture formed to develop the excess property adjacent to our home office facility in Plano, Texas (Home Office Land Joint Venture) and the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps. Unlike other operating expenses, restructuring and management transition charges, the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps are not directly related to our ongoing core business operations. Primary Pension Plan expense/(income) is determined using numerous complex assumptions about changes in pension assets and liabilities that are subject to factors beyond our control, such as market volatility. Accordingly, we eliminate our Primary Pension Plan expense/(income) in its entirety as we view all components of net periodic benefit expense/(income) as a single, net amount, consistent with its presentation in our Consolidated Financial Statements. We believe it is useful for investors to understand the impact of restructuring and management transition charges, Primary Pension Plan expense/(income), the (gain)/loss on extinguishment of debt, the net gain on the sale of non-operating assets, the proportional share of net income from the Home Office Land Joint Venture and the tax impact for the allocation of income taxes to other comprehensive income items related to our Primary Pension Plan and interest rate swaps on our financial results and therefore are presenting the following non-GAAP financial measures: (1) adjusted net income/(loss) before net interest expense, income tax (benefit)/expense and depreciation and amortization (adjusted EBITDA); (2) adjusted net income/(loss); and (3) adjusted earnings/(loss) per share-diluted.
In addition, we believe that EBITDA is a useful measure in assessing our operating performance and are therefore presenting this non-GAAP financial measure in addition to the non-GAAP financial measures listed above.
EBITDA AND ADJUSTED EBITDA, NON-GAAP FINANCIAL MEASURES:
The following table reconciles net income/(loss), the most directly comparable GAAP measure, to EBITDA and adjusted EBITDA, non-GAAP financial measures:
ADJUSTED NET INCOME/(LOSS) AND ADJUSTED EARNINGS/(LOSS) PER SHARE-DILUTED, NON-GAAP FINANCIAL MEASURES:
The following table reconciles net income/(loss) and earnings/(loss) per share-diluted, the most directly comparable GAAP measures, to adjusted net income/(loss) and adjusted earnings/(loss) per share-diluted, non-GAAP financial measures:
Reconciliation of Non-GAAP Financial Measures
Free cash flow is a key financial measure of our ability to generate additional cash from operating our business and in evaluating our financial performance. We define free cash flow as cash flow from operating activities, less capital expenditures, plus the proceeds from the sale of operating assets. Free cash flow is a relevant indicator of our ability to repay maturing debt, revise our dividend policy or fund other uses of capital that we believe will enhance stockholder value. Free cash flow is considered a non-GAAP financial measure under the rules of the SEC. Free cash flow is limited and does not represent remaining cash flow available for discretionary expenditures due to the fact that the measure does not deduct payments required for debt maturities, payments made for business acquisitions or required pension contributions, if any. Therefore, it is important to view free cash flow in addition to, rather than as a substitute for, our entire statement of cash flows and those measures prepared in accordance with GAAP.
FREE CASH FLOW, NON-GAAP FINANCIAL MEASURE:
The following table sets forth a reconciliation of cash flow from operating activities, the most directly comparable GAAP measure, to free cash flow, a non-GAAP financial measure, as well as information regarding net cash provided by/(used in) investing activities and net cash provided by/(used in) financing activities:
(1) Net cash provided by/(used in) investing activities includes capital expenditures and proceeds from sale of operating assets, which are also included in our computation of free cash flow.
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