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JCPenney Fails to Excite with Profitability Plans

jcpenneyConfidence that investors might have had in the turnaround of JCPenney (NYSE: JCP )was cut on Wednesday when the company lowered its third quarter outlook and cut the idea that it is necessary to close some stores.

These announcements, plus a weaker than expected September, caused the company’s stock to fall, even though the company assured investors they will make up any sales weakness in the fourth quarter and affirmed their guidance for the full year outlook.

Investors seemed hopeful as more than 200 of them gathered for the announcement from the retailer, many of them hoping for a surprise good announcement. But they were left wanting. The company stock closed at $8.19, a decrease of 11%.

This gathering of investors and analysts was the first time J.C. Penney has presented its outlook to a crowd since the former CEO Ron Johnson put forward his plan to transform the company’s image in January 2012.

The message from the company was clear, they have no problems with corporate identity. Lawrence Haverty, an associate portfolio manager with Gabelli Funds, says of this statement, “That’s good. It shows they are focused and they are what they are. And they’re not trying to be Saks.”

The only applause received on Wednesday was after the fashion show of the company’s private brands. These brands are a big strength because it is merchandise that can be priced a bit lower but still make a good profit margin for Penney’s. In 2013, the private brands fell to 30% of the store merchandise but has since rebounded back to its former margins of 50%.

A surprise big hit for the retailer was the Disney shops in children’s. CEO Mike Ullman said on Wednesday that 116 more will be added, for a total of 681 Disney shops.

One big weakness the company still has is the so called “center store” departments, namely jewelry, accessories, handbags, and shoes. According to Liz Sweeney, Penney’s chief merchant, the company is behind its competitors in that area and losing out on a $1 billion opportunity.

Women’s apparel is another big earner for JCPenney, but Ullman admits that it is hurting sales when customer have to go elsewhere to complete an outfit.

Ullman presented a three year plan to regain lost sales, saying that customer’s needs haven’t changed but their budget has. “Retail isn’t the industry it was five years ago or even one year ago.”

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