JCPenney 2005 Annual Report Download - page 5

make JCPenney a leader
in performance and execution
We look at leadership in a variety of ways,
and chief among them is demonstrating leadership
by achieving consistent, profitable sales growth. To
accomplish this goal, we must have the right inventory,
in the right place, in the right quantity, and at the right time.
nSTATE-OF-THE-ART PLANNING AND ALLOCATION: In connection with
the move to centralized merchandising as part of the turnaround,
JCPenney installed state-of-the-art planning and allocation systems, and
we have staffed them with the best talent in the industry. We continue to
build on this strong technological platform, which enables us to more
accurately manage our inventory in a way that allows our customers to
consistently find what they want in our stores.
nREDUCING CYCLE TIME: Another key initiative, and one that is a primary
focus of our efforts in 2006, is reducing our private brand “cycle time,” or the
time it takes from when we come up with an idea or trend in response to
customer behavior to when it hits the selling floor. In the past, the
Company’s average cycle time was up to one year. We are proud that with
our most recent brand launch, a.n.a, we were able to reduce that time by 50
percent. As a result of our world-class design, sourcing, and manufacturing
capabilities, we can continue to reduce product lead times and offer our
customers more relevant and timely merchandise.
strong performance and strengthened
capital structure in 2005…well positioned
to seize opportunity in 2006
The strength of our Long Range Plan is evident in our
2005 financial results. In addition to the highlights
mentioned at the opening of this letter,total sales rose
3.8 percent to $18.8 billion, with comparable store sales
increasing 2.9 percent year-over-year. In our Direct
business, sales rose 3.6 percent, with a nearly 28 percent
increase for jcp.com.
Full year gross margins increased to 39.3 percent of
sales, a 70 basis point improvement versus 2004. And
SG&A expenses in 2005 were 30.9 percent of sales, a 60
basis point improvement over last year.
As a result of our strong performance in 2005 - which
beat our internal expectations - the Boardof Directors has
authorized a new $750 million common stock repurchase
program, which adds to the $4.15 billion of stock that has
been repurchased over the last two years. The Board also
approved a plan to increase the Company’s dividend by 44
percent to an annual rate of $0.72 per share.
Also in 2005, we retired nearly $450 million of long-term
debt, which further strengthened our capital structure. In
recent months, both Fitch and Moody’s upgraded our debt
to an investment grade level, providing evidence that the
market has recognized our improved business proposition
and displaying confidence in our long-term prospects. We
believe that this confidence is well placed.
Going forward, we will continue to focus on maintaining
sufficient liquidity and flexibility to achieve the goals of our
Long Range Plan, including the opportunity to increase our
level of capital expenditures in order to accelerate the pace
of new store growth.
in closing…The past year was one of enormous
accomplishment at our Company, due to the
considerable efforts of our associates as well as of our
esteemed Board of Directors. In 2005, our Board grew
to include Mary Beth Stone West, a highly talented
consumer marketing executive at Kraft Foods.
Mary Beth’s experience in building some of America’s
best-known brands complements that of our other
Directors in providing outstanding guidance and
support to our greatly skilled management team as we
continue to execute our Long Range Plan.
As the retail environment continues to undergo dramatic
change, we are excited about where we are today and
what we see ahead. Most notably,we believe that the
consolidation of the department storeindustry yields
even greater opportunity for us in the middle market.
Weare well positioned to seize it through our enhanced
merchandise offerings, compelling marketing and
advertising programs, and consistently improving
operational execution. Indeed, we have come far, but we
believe thereis ample room for us to grow and
substantially build the value of our Company in 2006
and beyond.
Iwould like to thank our Board, management, and
all of our associates for their contributions in bringing
JCPenney to wherewe are today. And they all join me
in expressing thanks to you, our stockholders, for your
continued support of our organization. Welook
forward to keeping you apprised of our progress.
Myron E. (Mike) Ullman, III
Chairman of the Board and
Chief Executive Officer
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