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JCPenney Closing Stores & Ditching Catalogs

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A sign marks the location of a JCPenney store. (credit: Getty Images/Scott Olson)

A sign marks the location of a JCPenney store. (credit: Getty Images/Scott Olson)

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PLANO (AP) - JCPenney Co. is closing some stores, outlets and call center locations and continuing to work on an exit from its catalog business in an effort to streamline operations and boost profits.

The department store operator also said Monday that Vornado Realty Trust Chairman Steven Roth and activist investor William Ackman will become board members. Penney’s enacted a “poison pill” in October after both Ackman and Vornado took large stakes in the company.

Ackman and his hedge fund Pershing Square Management have pushed for major changes at retailers he holds stakes in, such as Borders Group Inc. and Target Corp.

In pre-market trading Monday, JCPenney shares jumped 3.5 percent, or $1.05, to $31.39.

In an interview on CNBC, Ackman said JCPenney is a great company and a great brand, but could be a better retailer. He noted that the company has had success with its Sephora boutiques, but that sales per square foot over the past 10 years have not made progress and margins are off.

Penney reported in November that its gross profit margin slipped to 39 percent from 40.6 percent in the third quarter due to heavy discounting and the discontinuation of its big catalog.

Penney plans to close six under-performing stores and two call center locations. It is also reorganizing its custom decorating business, which includes closing a custom decorating fabrication plant in Sacramento, Calif., and shifting to managing 300 decorating studios instead of 525 of its current in-store studios.

The retailer’s exit of its legacy catalog business includes shuttering 19 outlet stores that carry a large amount of catalog merchandise. Penney announced in November 2009 that it would stop publishing its twice-yearly “big book” catalogs. The company will also close one furniture outlet store in Rancho Cucamonga, Calif.; it will have two remaining such stores.

The company did not disclose how many job cuts would be involved in the actions, which will take place during the course of the year.

JCPenney currently runs more than 1,100 department stores in the U.S. and Puerto Rico.

“As we continue to position our company for the future, we determined that these steps are necessary to capitalize on the growth opportunities we see ahead while we ensure we are managing costs appropriately and continually enhancing the profitability of our operations,” Chairman and CEO Myron E. Ullman III said in a statement.

The retailer, based in Plano, expects the moves to add about 7 cents per share to 2012 earnings. It will take charges of about 8 cents a share in the fourth quarter and 5 cents per share in 2011 related to the actions.

Penney, which will report its fourth-quarter results on Feb, 25, has recently found some success with exclusive brands. The company is the only U.S. retailer to sell Liz Claiborne and Claiborne women’s wear, except the Isaac Mizrahi-designed Liz Claiborne New York brand, which went to QVC. It is also the only department store selling MNG by Mango, a European clothing brand, a big coup as fast-fashion players have been a big threat to department stores.

Earlier this month JCPenney reported revenue at stores open at least a year rose 3.7 percent in December, part of the crucial holiday selling period. The figure beat analysts’ expectations; the measure is a key indicator of a retailer’s health because it gauges results at existing stores instead of newly opened ones.

Ackman and Roth are expected to be a part of JCPenney’s board by its board meeting on Feb. 22, increasing the board’s size to 13 members from 11 members. Another director is expected to be added in the near future, the company said.

When Ackman disclosed the stake in October, he said Penney’s stock was undervalued and he planned to discuss “business, assets, capitalization, financial condition, operations, governance, management, strategy and future plans.”

In Penney’s statement Monday, Ullman said, “We welcome Bill and Steve to the board. They share our passion for operational excellence and are committed to enhancing value for all of the company’s shareholders.”

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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