JCPenney 2007 Annual Report Download - page 4

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Dear JCPenney Stockholders:
Over the past year, the economic pressure on American families
increased dramatically, impacting our Company and our industry.
Within this tough climate, I am proud of the performance of our
Associates and the competitive advantage we are continuing to build.
And I have even more confidence in the strength of the Long-Range
Plan strategies we are pursuing to become the growth leader in the
retail industry.
In periods like this, our customers are relying on us more than ever to
provide merchandise that has the great style and quality they are
looking for at smart prices, and a shopping experience that is
easy, exciting and engaging.
With this in mind, as the economic downturn began in mid-2007, we
continued to put our customers at the center of all that we did. We
also took action to reduce expenses and manage our inventories,
enabling us to maintain the financial strength and flexibility to support
our Long-Range Plan, while taking steps to reflect current realities.
For 2008, our intention is to focus even more intently on putting our
CustomerFIRST. This will be evident in the strength of our merchandise
offerings, the emotional connection of our marketing and promotions,
and most of all, in the way our Associates interact with our customers.
In short, our “Every Day Matters” philosophy will be more apparent
than ever as we work to achieve our goal of being the preferred
shopping choice for America’s families.
A Year of Challenge and Triumphs While we began to see evidence
of a slowdown in early 2007, the drop in home sales and prices,
tighter consumer credit and escalating fuel and food prices led to a
precipitous decline in U.S. consumer spending in the second half. As
we recognized the change in the retail environment, we acted to
address these challenges by moderating our business plans,
capitalizing on our centralized operating model.
The changes we undertook included accelerating certain promotions
to remain competitive in the highly promotional climate in the third
and fourth quarters. This price optimization approach enabled us to
effectively clear seasonal merchandise and left us with appropriate
levels of inventory as 2008 began.
We also rolled out expense-saving initiatives, utilizing our workforce
management technology to alter our staffing and salary plans across
our stores. In general, we ensured that our selling floor had ample
Associate coverage during peak shopping times, while reducing our
staffing during less active periods. In addition, SG&A benefited
greatly from lower costs related to pension expense and incentive
compensation, which essentially offset gross margin declines related
to the increase in promotional selling.
Our Approach to 2008: Moderate, Maintain, Accelerate We
are planning our business for 2008 conservatively due to our
expectation for ongoing economic turbulence. This means that we
are balancing our operating and capital planning to address
near-term pressure while taking advantage of opportunities that
Highlights of our 2007 performance include:
n฀ ฀ The second-highest sales and earnings in our 105-year
history, at $19.9 billion and $1.1 billion, respectively, including
the contribution from 50 new and relocated stores opened
in 2007.
n฀The launch of “Every Day Matters,” our new brand
positioning, which serves as the foundation for accelerating
growth across the Company by enabling JCPenney to have
a deeper, more emotional and enduring relationship with
current and new customers.
n฀The launch of major merchandise brands including
Ambrielle, Liz & Co., CONCEPTS by Claiborne and C7P…A
Chip & Pepper Production.
n฀฀ Sales through jcp.com increased approximately 15% on a
52-week basis, to $1.5 billion.
n฀Investing in the strength of our communities and
respecting our environment, including the growth of the
JCPenney Afterschool Fund which assisted over 20,000
children with access to life-enriching afterschool programs,
as well as earning the EPA’s ENERGY STAR Partner of the
Year for outstanding energy management and reductions in
greenhouse gas emissions.
n฀The repurchase of $400 million of stock, bringing us to
a total of $5.3 billion in repurchase activity in the past
four years.
n฀The Company paid an annualized cash dividend of $0.80
per share, an increase of 11% over our 2006 dividend.
n฀A strong year-end financial position, with cash investments
of approximately $2.5 billion and long-term debt of
approximately $3.7 billion, including a very successful
$1 billion new debt offering and the retirement of about
$700 million of maturing and high coupon callable debt.