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JC Penney to Shutter Forty Stores; Plans Major Layoffs

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In an attempt to recoup and give itself a major facelift, J. C. Penney Company, Inc. (JCP - Free Report) announced plans to close 40 stores by Apr 2015 and lay off approximately 2,250 workers as a part of its turnaround strategy.

Progressing with the strategy of shutting down its underperforming stores, the company expects to incur estimated pre-tax charges of approximately $21 million in the fourth quarter of fiscal 2014 and about $17 million in the future.

However, the benefits of this endeavor will overshadow the costs as store closures would improve cash flow by lowering inventory levels along with saving costs from shuttering unprofitable stores.

Further, the need to be in tune with changing trends and boost sales has compelled J. C. Penney to adopt this restructuring action. The shopping patterns of time-constrained customers have shifted from conventional brick and mortar stores to sophisticated online shopping across desktop, tablets and smart phones.

We note that J. C. Penney had followed a similar strategy in 2014 to boost its profitability by shutting 33 of its stores and slashing about 2,000 jobs. Another department store retailer Macy's, Inc.’s (M - Free Report) also initiated a similar restructuring strategy, including store closures and layoffs. The company will be closing 14 stores by the spring of 2015 and expects to lay off 2,200 employees in order to boost sales and enhance performance.

We believe J. C. Penney’s decision fits well with its long-term growth strategy. The decision came right after this Zacks Rank #3 (Hold) company delivered impressive comparable-store sales (comps) performance for the crucial holiday season. The company’s comps for the combined nine weeks of November and December were up 3.7% year over year.

Buoyed by strong comps data, management now expects fourth-quarter fiscal 2014 comps to be on the higher end of its previously provided guidance of 2-4%.

The holiday shopping season this year has been an uplifting one for most retailers, with many of them reporting solid sales numbers for the months of November and December. Some of these retailers, with solid comps results, include Gap Inc. (GPS - Free Report) and Pacific Sunwear of California Inc. . Gap’s comps increased 3% for the holiday season, while net sales rose 4%. On the other hand, Pacific Sunwear of California registered 9% growth in comps for December.

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