JCPenney 'excited' about its IT strategy amid turmoil

CEO Ron Johnson has big IT plans and touts state-of-the-art Oracle systems on deck. The problem: The fundamentals are so bad at JCPenney that Johnson and his big IT plans could run out of time.

Retailer JCPenney's fourth quarter results were a disaster as same store sales tanked, the company had to start issuing coupons and the balance sheet showed cracks. But CEO Ron Johnson, best known for running Apple's retail business, has a lot of faith in using technology and Oracle's systems as part of a turnaround plan.

Speaking on JCPenney's fourth quarter earnings conference call, Johnson outlined his big Oracle bet:

We are so excited about our Oracle strategy. Over the next three years, we will completely overhaul our information systems and be 100% at state-of-the-art Oracle systems and with systems from a handful of other partners that will augment that. And so we will have state-of-the-art systems.

But the most important part of the change is that nearly $100 million a year as we go forward will be invested in the next new thing. And so we're going to stay current for years to come because of this transformation we're going through. So we will see benefits each and every year as we roll out systems. This year we will see benefits in our financial systems. Later in the year, we will see benefits in our merchandising, our planning and allocation systems as they roll out. But as we move through this transformation, when we exit, we will be in an unbelievably great place on systems and I think ready to compete with anybody in our industry on the use of information technology to drive the business.

What's unclear is whether Johnson and JCPenney will have enough time to see these Oracle plans completed. Johnson has an in-store strategy that emulates Apple in many ways with mobile checkout systems and a layout that emulates an app model in some respects.

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Johnson added that systems improvements are already helping the retailer "understand the business and serve our customers." One big example is that JCPenney now has mobile point of sale systems so employees can check out customers with an iPad at any time in about a month.

The problem with JCPenney's IT strategy is that it needs the business to deliver results as well. Here's a look at JCPenney by the numbers in the fourth quarter:

  • Same store sales fell 31.7 percent in the quarter.
  • Gross margin in the fourth quarter was 23.8 percent, well off the 30 percent expected by Piper Jaffray.
  • Cash on the balance sheet was $930 million, below the $1 billion projected by management after the third quarter.
  • The fourth quarter net loss for JCPenney was $552 million and the 2012 loss was $985 million.
  • Sales were dreadful throughout 2012.


JCPenney's stock chart speaks for itself:



And then there's the cash burn. Piper Jaffray analyst Alex Fuhrman said:

We believe JCP will likely burn cash throughout the remaining three years of its four year turnaround strategy unless sales rebound sharply in 2H13 or 2014. We believe JCP has adequate liquidity to fund its capital expenditures in 2013, although it will likely need to draw on its credit facility as soon as Q1. Looking into 2014 and beyond, we believe JCPenney will likely need to raise additional capital unless there a meaningful turnaround in sales in 2H13.

In other words, JCPenney's Oracle rollout may be derailed if the retailer can't deliver better sales.