It did come as a bit of a surprise for investors, as one department store retailer, J. C. Penney Company, Inc. JCP went on to post a sales gain during the holiday season, while the other, Macy's Inc. M, succumbed to a sales decline, despite facing similar issues such as unfavorable weather conditions, a strong dollar and a shift toward online shopping. Let’s delve a little deeper into the matter.
A Look at JC Penney’s Performance
Despite unusually warm weather, J. C. Penney ended the holiday season on an upbeat note. This department store retailer registered comparable-store sales growth of 3.9% for the combined November/December period of 2015, which is crucial for any retailer as it accounts for a sizeable chunk of yearly revenues and profits.
J. C. Penney hinted that while unseasonably warm weather impacted sales of apparel, sturdy demand for private brands, robust online sales and compelling gift products helped it deliver an improved holiday sales performance. Management also reiterated its full-year adjusted EBITDA guidance of $645 million and expects to generate positive free cash flow in fiscal 2015.
We note that J. C. Penney has been focusing on remodeling, renovating and refurbishing its stores, with special focus on the high-margin center core department, to enhance customer shopping experience and drive traffic. Moreover, this Zacks Rank #3 (Hold) company has been enhancing the reach of its national and especially private-label brands, through effective marketing campaigns and point-of-sale technology initiatives.
The company has also made investments to boost supply chain efficiency. Additionally, the company is widening its assortments and concentrating on improving omni-channel operations.
What Went Wrong with Macy’s?
Unprecedented warm weather and lower spending by international tourists due to a stronger dollar dampened the performance of department-store chain, Macy's, during the holiday season. Macy’s informed that comparable sales on an owned plus licensed basis fell 4.7% in the combined November/December period of 2015, while on an owned basis, comparable sales declined 5.2% over the same period.
Management hinted that roughly 80% of the decline in comparable sale was due to weak demand for cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. However, the only bright spot was the digital business that registered an increase of 25% in sales, meeting 17 million online orders at macys.com and bloomingdales.com.
Disappointing holiday sales prompted this Zacks Rank #3 company to trim its earnings forecast and undertake cost containment initiatives, involving headcount reduction and store closures. For fiscal 2015, management now envisions earnings in the band of $3.85–$3.90 per share, down from $4.20–$4.30 projected earlier. (Read: 5 Retail Stocks to Watch as Warm Winter Hurts Macy's Sales)
Bottom Line
While warm weather resulted in sluggish demand for winter merchandise sales, analysts also pointed out that consumers spend more on electronics, cars, home goods and travel, and less on apparel and cosmetics.
Zumiez, Inc. ZUMZ and The Gap, Inc. GPS recorded comparable sales decline of 8.9% and 5%, respectively, during the month of December. However, apparel retailers, including L Brands, Inc. LB and The Cato Corp. CATO, posted positive comparable-sales results of 8% and 6%, respectively.
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