http://www.morningstar.com/earnings/44966526-jc-penney-co-inc-jcp-q3-2012.aspx

JC Penney Co Inc JCP
Q3 2012 Earnings Call Transcript

Transcript Call Date 11/09/2012

Ron Johnson - CEO: Good morning, everybody. Welcome. This is one of the best decisions we made I think about a year ago when we started the transformation of JCPenney was to meet face-to-face in New York throughout our transition. I think it is really important that we have a chance to share directly with you the progress we are making and how we think about it because ultimately how we think about it in many ways is as important or more important than how we perform. So, today we are going to share a lot of our learnings, a lot of new information that you haven't seen and I think you’ll find it find very informative as investors. So, welcome.

This was another quarter of unbelievable learning for us at JCPenney. We are now nine months into our transformation and we have eight weeks to go until we are completely done anniversarying our promotional model and each quarter we learn a lot, we adapt, we try to move forward and I'd like to start today by sharing three key learns that we have this quarter.

The first relates to the traffic to our stores. In a few moments, Ken Hannah is going to share with you our traffic, but during the third quarter our traffic was down 12%. We are down 11% Q1, 12% Q2, 12% Q3. So, anniversarying our promotional model where we drove people into coupons and ads and all the events has have a pretty standard impact throughout the transformation and we expect that kind of traffic continue going forward. We won’t know until we get through the holiday, but it's a pretty predictable pattern.

What was interesting about back-to-school quarter is we went through our first really competitive promotional period, which was back-to-school, and we discovered this quarter as our traffic during back-to-school was our second best month of the year. Our traffic was actually down in the high single-digits, and then our traffic got worst during September and October, as I mentioned to those of you who were in Dallas. So the good news, we learned this time that we can draw traffic during a key promotional period. In back-to-school we did it in a variety of ways; we had good television advertising; good media spend compared to prior year, even though it was down, it was strong enough. We had our first act of generosity, where we gave free haircuts to every kid in America needed a haircut, and 1.6 million kids came in for haircut and that got us into the hearts and minds of customers.

We were in the newspaper and newsprint every Sunday, every Friday for the four key weeks of back-to-school. So the combination of television, an act of generosity, pre-prints brought people into the store. That was important to us, because we're going into the biggest promotional period, which is holiday, and we've taken those learning implied into holiday and we have even more for holidays that we'll talk about little later.

Now the second half of the quarter though, we had our traffic down that obviously was down enough to get us to down 12 for the quarter. Well, that was interesting too, because when you go through the spring season, there are natural traffic periods that drive people into the store. In February there is a Valentine's Day and there is a holiday the week afterward. In March, we have Easter; sometimes March, sometimes April, but there is a big Easter holiday that brings people in. Early May we have Mother's Day. June we have Father's Day. Then we move into back-to-school. The post-Labor Day through Thanksgiving is the longest period in retail without a natural retail event to draw, and quite frankly what we learned is that our former promotional model with couponing was able to bring people into the store during a period when they naturally wouldn't come. So, we're establishing a new base in business.

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