The 100-plus stores that J.C. Penney plans to close this year may not be its last.
Just two weeks after telling investors that the chain will exit as many as 140 locations this year, two Wall Street analysts say more closures may be ahead.
At a meeting with analysts in New York City on Thursday, Penney's management said it is testing in its smaller stores some of the initiatives that have been powering its sales in larger locations. Those tests include a smaller version of its Sephora beauty shop and home appliances.
If the tests are successful, Penney's should be able to keep more stores open, Cowen and Co. analyst Oliver Chen said. Otherwise, it may need to close additional stores in the future.
"Management believes closing weaker stores will allow J.C. Penney to more efficiently allocate capital to better performing stores while simultaneously raising the J.C. Penney brand profile," Chen said in a research note. "Stores which had implemented growth initiatives including beauty, with Sephora and InStyle [its salon business], home refresh and with appliance showrooms and plus size significantly outperformed other stores."
Citi analyst Paul Lejuez echoed Chen's sentiment, adding he'd expect the additional closures to occur after the current fiscal year. The possibility of more stores going dark doesn't come entirely as a surprise, as an analysis from Green Street Advisors, a real estate research firm, concluded earlier this year that department stores need to close 800 locations to restore their 2006 productivity.
While revenue at Penney's established stores slipped 0.7 percent in the fiscal fourth quarter, home, appliances and beauty all generated positive comparable sales. The company is using these categories as ways to differentiate itself from its department store competitors and battle the shift toward online shopping.
"We believe the relevance of our brick-and-mortar portfolio will be enhanced by creating a more inviting environment in our physical stores," CEO Marvin Ellison said on the company's recent earnings call. "So having Sephora, appliance showrooms and InStyle Salons are examples of this type of environment we want to create in more of our stores."
Penney's last month disclosed it would close 130 to 140 stores this year, to "effectively compete against the growth threat of online retailers," Ellison said. The stores represent 13 to 14 percent of Penney's physical portfolio but generate less than 5 percent of its annual sales. They contribute nothing to its net income.
Though the chain has not yet revealed which of its shops it will shutter, 90 are stand-alone stores in smaller markets with the remainder being mall-based, Lejeuz said. Penney's is expected to release the list of closures later this month.