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J.C. Penney Wants This Turnaround Done

Stocks in this article: JCP TGT TJX

NEW YORK (TheStreet) - J.C. Penney (JCP) just wants this turnaround completed already, and management is pushing for it to happen by the end of the year. The tone on last night's conference call was that J.C. Penney's management is getting more aggressive in making the turnaround happen.

"Today, the most challenging and expensive parts of the turnaround are behind us and the work we did in 2013 has laid a foundation for continued progress in 2014," CEO Mike Ullman said on last night's fourth-quarter earnings conference call.

The company has said that the "turnaround would come in three phases: the immediate stabilization phase, followed by a phase rebuilding and then the go-forward phase positioned JCPenney for long-term growth. Over the last 10 months, we completed the first two phases of our turnaround in a very tough and highly competitive environment and this year [we are] progressing [the go-forward] phase," he added.

If J.C. Penney's plan works out and goes according to schedule, this will not be your mom's J.C. Penney stores when it comes out the other side.

First on the gross margins, Ullman and team have been working to get rid of brands that were not resonating with customers and return those that were popular in the past. In the fourth-quarter, the company decided to facilitate the final push by discontinuing certain merchandise brands that were not part of its "go-forward merchandising strategy."

Those brands include JCP Men's, Stafford Prep, JOE by Joseph Abboud, William Rast, Joe Fresh Kids and jcp Everyday. The company is also shrinking merchandise assortment from brands such as Joe Fresh in women's apparel, Michael Graves Design, Conran and others in the home department.

Of course that meant that gross margin in the fourth quarter took an extra hit because of it, but Ullman and team are not apologizing.

Yesterday, the Plano, Texas-based retailer reported GAAP net income for the January-ending quarter of $35 million, or 11 cents a share. On an adjusted basis, the company reported a loss of $206 million, or 68 cents a share. Consensus estimates, according to Thomson Reuters, had called for an 85-cent quarterly loss.

Gross margin, while an improvement to 28.4% from 23.8% year over year fell from 29.5% of sales in the third quarter. J.C. Penney had said during third-quarter earnings that it expected gross margin to improve sequentially. Approximately 190 basis points of the decline was due to the discontinuation of the brands.

"We decided after we had given the guidance that as we thought about the go-forward phase, if we really want to finish off the rebuilding phase, let's put behind us the things that the customer really doesn't expect to see in JCPenney. So that did affect our margin and that explains the difference," Ullman said on the call.

Next, Ullman says that some of its smallest stores are the most profitable, and while they plan to close 33 underperforming stores (which of course means some staff firings), that doesn't mean they aren't investing in new digs.

Ullman specifically noted the company plans to open up a store in Brooklyn, N.Y. in the spring. Though he did not share specs on the store's size, in an urban neighborhood like that, it's fair to say it won't be the sprawling carcass that some J.C. Penney stores are today.

It's likely that J.C. Penney will focus on smaller stores going forward.

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