JCP 1.26.12 Analysts Meeting Day 2 Transcript

7/31/2019 JCP 1.26.12 Analysts Meeting Day 2 Transcript

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THOMSON REUTERS STREETEVENTS

EDITED TRANSCRIPTJCP - JCPENNEY ANALYST MEETINGDAY 2

EVENT DATE/TIME: JANUARY 26, 2012 / 2:00PM GMT

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C O R P O R AT E P A R T I C I P A N T S

Kristen Blum JCPenney - EVP, Chief Technology Officer

Ron Johnson JCPenney - CEOMike KramerJCPenney - COO

Michael Francis JCPenney - President

Michael DastugueJCPenney - EVP, CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Todd DuvickBank of America Merrill Lynch - Analyst

Adrianne Shapira Goldman Sachs - Analyst

Bernard SosnickGilford Securities - Analyst

Greg MelichISI Group - Analyst

Matt Boss JPMorgan - Analyst

Charles GromDeutsche Bank - Analyst

Bob Drbul Barclays Capital - Analyst

Deborah WeinswigCitigroup - Analyst

Carla Casella JPMorgan - Analyst

P R E S E N TA T I O N

Unidentified Company Representative

Ladies and gentlemen, please take your seats. Our meeting is about to begin.

Kristen Blum - JCPenney - EVP, Chief Technology Officer

The discussion this morning includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which

reflects the Company's current view of future events and financial per formance.The words expect, plan, anticipate, believe, and similar expression

identify forward-looking statements.

Any such forward-looking statements are subject to risks and uncertainties. And the Company's future results of operations could differ materially

from historical results or current expectations. For more details on these risks, please refer to the Company's Form 10-K and other SEC filings. Also

please note that no portion of this presentation may be rebroadcast in any form without the prior written consent of JCPenney.

Replays of today's webcast will be available for 90 days. For those listening after January 25 and 26, 2012, please note that this recording will no

be updated and it is possible that the information discussed will no longer be current. And now I would like to turn it over to our CEO Ron Johnson

Ron Johnson - JCPenney - CEO

Good morning. For those of you who were here yesterday that was not Ellen DeGeneres reading.That was Kristen.Welcome, thank you for coming

We had a great day yesterday, just a couple of interesting points.

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JANUARY 26, 2012 / 2:00PM, JCP - jcpenney Analyst Meeting Day 2


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As we said yesterday that was our largest in person investor meeting ever. And on the telephone lines yesterday and on the Web, there were 20

times the number of people listening in of any previous JCPenney investor conference. And we think that's pretty great, and we appreciate the

interest in what we're doing here. And because of that for the first time ever this conference, this morning this meeting, is being broadcast streamed

live over the Web.

So for all of you listening in, thank you for being here today, and we're thrilled that you can see this in person. Our plan today is I'm going to say a

few words, and then I'm going to turn it over to our Chief Operating Officer, Michael Kramer to give you a financial update. And then Michae

Dastugue, Michael Francis, Mike Kramer and I will come up on stage and take your questions, all right?

But just for those of you that weren't here yesterday, we announced our plans that over the next four years we will completely transform JCPenney

with an objective to become America's favorite store. And the way we're going to do that is we're going to rethink everything we do and try to

position really JCPenney for the next century to put us in a leading position in the retail industry by being not just competitive at everything we

do, but the best at what we do.

And we announced that beginning next week, we're going to change our pricing strategy, which moves to fair and square.We're going to change

our brand corporate identity and create a whole new personality for the Company. And we'll begin our monthly cadence, so we're going to now

have values that last for an entire month and rather than doing 590 events, we do 12. That all starts next week on February 1st.

And then beginning in the fall, we'll start to roll out all new merchandise initiatives that will be done in a shop format. And this fall we'll roll out ten

unique shops that will go to all 1,100 stores, and that will start on August 1st. That will continue for three or four years until we complete the

complete merchandise with JCPenney and shops. All right?

And at the same time we talked yesterday about an all new concept for our retail stores, which are called Town Center which brings a new feature

to retail that's never been done. We talked about a new store design we'll start rolling out in 2014 and so those are some of the elements of ou

transformation plan.

The thing we didn't talk about was what's it going to cost? A little bit of how long it will take, what are the potential returns? And so today we're

going to turn over to the more of the financial portion of the meeting, and Mike Kramer will deliver a presentation to address a lot of that. And

then we'll come back for the Q&A. All right?

So thank you for coming and let me introduce Michael Kramer at this time. Mike? Mike? Thanks, Mike.

Mike Kramer - JCPenney - COO

Thank you, Ron. Good morning. It's really good to be back in front of the financial community here in New York. I see a lot of familiar faces. Ove

the last four years, I've actually -- well, I think the last time you guys saw me, I was wearing flip flops, cargo shorts and a big moose splashed right

across my chest. But I think over the last four years since I left Abercrombie and Fitch, I actually ran a company that provided branded product to

the department store industry.

So I think that that gives me a unique perspective on the department store industry, which quite frankly was very frustrating to me as a branded

provider. So in the seven years that I left Apple, I stayed in touch with Ron Johnson.We -- clearly being a mentor of mine and I'd call him every now

and then and ask him for advice.

And especially over the last four years, we would engage in conversations about my frustration on trying to grow my brand through the departmen

store industry and the frustration that I had not only because the market share was declining, but because of the resistance to change. And I'll

elaborate that on a little bit.

So imagine my surprise when six months ago, it was announced that Ron Johnson was going to go be CEO of JCPenney. My first response was

elation because I knew him as a leader, and I was excited about him coming to the industry.

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Fast forward one month. I received a phone call from Ron Johnson.We talked. He talked to me about his vision with JCPenney, and he wanted me

to come onboard with him. And quite frankly obviously I was honored that he would ask me to part of his team again, but what really got to me

in terms of that conversation, because I knew him pretty well, was the passion that he exuded.

Now, for those of you that know Ron, his passion is at a very high 24/7, but I saw a passion in him that I hadn't seen in him for such a long time

And as I hung up the phone, I sat there and I thought, you know, Ron's not only going to transform JCPenney. He's going to transform the industry

And I'll be damned if he's going to do it without me.

Another perspective of that phone call was as I was talking to Ron, my wife actually entered into the room, clearly because she knew something

was up. She sits in the chair and out of the corner of my eye, I actually see her. And over the course of the conversation, a scowl was forming on

her face.

After the phone call I looked at her and I said, what's the problem? Because I knew that she adored Ron. This first thing out of her mouth was, wel

at least you could've played hard to get. She was right because I basically had my bags packed before the phone call was over.

The industry's starved for leadership.This is actually a slide that you saw yesterday. And it's a powerful slide and really speaks to the frustration tha

I had in terms of providing product to the department store industry. Clearly Ron showed you that the department store was declining 50% -- hasdeclined 50% in market share over the last two decades. But I'm going to delve a little bit further in here as it relates to my frustrations.

What's interesting is if you bifurcate out specialty mapped discounts, specialty represents 37% of that now as compared to the 31% of departmen

store and the 32% for mass discount. I could understand mass discount, but what I cannot understand is now that specialty is the king of the road

How can this be? I mean, I remember conversations with Ron where we'd talk about it because how possibly could they be losing market share

because the playground or the rules weren't even. It wasn't an even playground.

When you take a look at the two largest P&L line items, the department stores had major advantages over that same two decades.The average

department store spends $1 billion in marketing spend. Now, yesterday Ron told you that 99% of the spending didn't go anywhere. Compare tha

to the average specialty store chain does roughly $31 million in marketing spend. Look at that advantage the department store has.

Rent per square foot on average the department store pays $4 a square foot. Specialty store on average is $40 plus. Those two things just make

me wonder how possibly did the leadership of the department stores allow this to happen and especially because the playing field wasn't level?

Well, Ron really told you a little bit about that and it was the deterioration of the six Ps. But what I'm going to do is, kind of, condense that into

another phrase if you will and that phrase is they lost sight of the customer.

Now, here's a story I'm going to tell you. When I was at Kellwood, I had a junior's brand that I sold through an unnamed department store. There

were several brands sold through the junior's department, but there were five key brands. Season after season, my brand performed in the top

three. Some seasons it was one, some seasons it was two, some seasons it was three.

Interestingly enough, I noticed that brands four and five were constantly performing in the bottom. So in my effort to try to grow my business,

went to the unnamed department store. And I asked them, given the fact that brands four and five continually perform poorly, why don't you

excuse them from the assortment and give me that space and thus a win for both of us in driving the productivity.The answer back to me? Not so

fast.

Even though those two brands performed at the bottom and that they were unproductive brands, the department store made almost as much

money on them as they did with mine.Why? Because of vendor kickbacks.

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Now, I can understand that on a temporary basis, every brand might have a bad season. And that you might work with a vendor and be able to

maintain that through a vendor kickback. But season after season after season I don't understand.That's actually a short term strategy because

they've lost sight of the customer.

My question back to them is don't you care that she's walking out of the store with a bag in her hand? Because quite frankly the reason why it's a

short term play and you saw the market share decline is because after about four times going into that store and not coming out with a bag, she'

no longer going in there. She's stopping at H&M. She's stopping at Forever 21.

And you heard yesterday that Michael talked about the elimination of unproductive brands. We are going to listen to the customer. Now, what I'l

tell you is the battle's not over. Specialty store has been eating into our productivity.

You now see specialty store actually taking square footage that was once dominated by department stores, even bigger in terms of some of the

large specialty stores that you saw in the '80s and '90s that didn't work. You actually see anchor stores that are Forever 21, H&M. Long story short

I'm really happy that I'm going to be part of the solution.

Now, yesterday Ron laid out the blueprint for the transformation of JCPenney.What I'm going to try to do today is clarify a little bit for you in terms

of the blueprint as it relates to the economics in what he talked about yesterday.

Now, interestingly enough after the presentation yesterday, I had quite a few people come up to me and say, wow that was amazing. Are Ron and

Michael always that energetic? The answer to that is, yes, 24/7.

And quite frankly over the six years that I worked with Ron at Apple, I got used to working with somebody at such high energy level. But now I've

got two of them, so you can imagine what my day is like. Let me just tell you they don't make enough Red Bull for me to keep up with both of those

guys.

But in any case, what I want to talk to you about and what excites me the most about what Ron laid out yesterday, is that it dramatically simplifie

and enhances the profit formula. In recap, yesterday what Michael and Ron said and communicated was a clear marketing and pricing strategy.

I'm sitting there thinking of the dollars that are going to go away or allow us to reinvest.

We were doing 590 promotions.We're moving to 12 promotions. I'll get into a little bit more detail about that. Simplification going from 400 plus

brand to 100 stores, 100 shops within the stores.The combination of those two really allows us to not only simplify the business, but to simplify

the infrastructure that supports that business.

Clearly it gives us an opportunity to take a new look at our merchandising organization. And because we're going to take a new look at merchandising

organization, it gives us a new opportunity to look at our planning and allocation, and it cascades so on and so on.

But what excites me most about this simplistic model is it allows our merchants to do what they do best and that is focus on great product versus

focusing on pricing cadence, which they were spending a large portion of their time doing.

Lastly, I want to talk a little bit about culture. I've been very fortunate to work for some companies with some amazing cultures, but let me give

you a comparison of the culture that we inherited versus the culture of tomorrow.The culture that we inherited was really a management-focused

culture versus the tomorrow culture of leadership-focused.

What do I mean by that? Well in terms of the management, I think that to a large degree JCPenney was a living, breathing organization obviously

but based on the numbers it wasn't going anywhere. And because of the complexity of the model that was laid out yesterday, there was this rea

need to look at, do analysis to look at more, dig in from an excessive granularity perspective and to try to figure out ways that they can actually

better the business.

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But what would happen was is this excessive granularity they wanted more reports, more reports. They wanted more analysis.Then they wanted

more people.That transcended to more reports, more analysis, more people.

So what excites me today is about the simplification of that. What we found with regards to excessive granularity, and I understand why they didit, but what I don't understand is that they -- over the course of the time they didn't look at it.There was no payback to that.There was no payback

So what we call that excess granularity, we call that false precision.

So this simplistic model that we're moving to will really allow us to free up the organizational structure to do what's best for this Company. So

Kramer, monetize that for me. Well, in 2010 we reported an SG&A structure of roughly 33% of our net sales. Kohl's, a very similar volume company

reported 27% SG&A of their net sales.

Now, I'm not calling out anything that you guys haven't been calling out. That 6% differential represents $1 billion. Now, that's not the whole

picture.When we took a look at the P&L, there was roughly $500 million that was attributed to margin that actually were classified as SG&A at some

of the other competitors including Kohl's.

So quite frankly if you look at apples-to-apples, we were running an $18 billion business on $1.5 billion more of operating infrastructure than ou

friends up north. Now, what did we do about this? Now let me just be very clear here, we're not looking at simplifying this organizational structureto meet some number from a competitive perspective. We're doing it because it's the right thing for the business.

At this point in time I want to actually introduce somebody and he's going to kill me for doing this, but it is Dan Walker here. Dan, can you stand

up? For those of you -- the reason why I'm introducing Dan is because he's really my partner in crime in terms of the last 90 days of really digging

into the infrastructure and layering it all on to the blueprint that Ron and Michael have laid out.

Now, Dan comes to us with a great track record. For those of you that don't know him, Dan worked with Mickey Drexler in building the team during

the hay days of the Gap. Dan kind of went into semi-retirement. Steve Jobs talked him out of retirement and he came onboard when Apple was in

his quote, in the gutter, hired a great team including Ron Johnson, and was very instrumental in the transformation of Apple. Well, clearly, he gets

a call from Ron, and he's going to be helping us in terms of really solidifying this blueprint as it relates to the expense structure and matching it up

with Ron's blueprint.

So what did we find out over the last 90 days? Well, we're confident that we can reduce our SG&A as a percent of sales to a sub 30% rate by 2013

Well, is that enough? Well, we kept looking and we kept looking and quite frankly we are very strongly committed to the fact that we can reduce

our SG&A structure to 27% by 2015.Where can we gain that efficiency? What's the detail of that? Non-politically correct is where can we cut costs?

I'm going to give you some examples. When we took a look at it during the last 90 days, we've actually highlighted this so there's roughly $400

million of expenses in the stores level that we can cut over the next year -- advertising $300 million and home office $200 million.That represents

$900 million in savings as it relates to the new operating model.

Now, we're not going to be able to get all of that day one. So that $900 million run rate will not be effective till 2013, but we'll get a portion of tha

in 2012. So I'm going to give you a little bit of examples, but for obvious reasons I'm not going to go into a lot of detail.

So let's talk about the big hitter stores. What Ron showed you yesterday was the fact that the customer was getting bombarded and that 99% o

the time she wasn't listening. Clearly, there's savings in advertising which is a mainstay with regards to our strategy. But what I saw was the fac

that there's savings in the stores.

On average, our stores would receive three promo packets a week. We're going to be moving to one promo packet a month. The amount of labo

in the store that it took to re-price the keystands, to re-price the product, week by week, day by day, amounts to a savings of $50 million. Clearly

with the new strategy, this can be -- we can benefit from this immediately.

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Let me give you another one, because this is such a heavy hitter. On average, if you take a look at the stores that are comparable in terms of the

size and volume with regards to Kohl's, our average store it takes 2,500 hours to operate these stores.

Now, let's compare that to Kohl's, who I think does a pretty good job in terms of operation. Those same stores only take 1,900 hours to operateThat difference of 600 hours, you extrapolate that out over the stores that actually are represented in terms of close comparisons to Kohl's time

52 weeks times the $12 average wage rate, that's $250 million. And that is only the top 682 stores. We're looking at the process for the other 400

stores.

Now, let me give you an example of when we dug through and looked at the processes to identify that $250 million. Here's one large example.

This is actually a picture of our cash wrap. On average, we have 36 cash wraps in our stores.What we found when we dug through is that nine of

those cash wraps were rarely used.They were used primarily for peak periods.

Now, you say, well, why didn't you leave them empty? Well, we didn't want to leave them empty.We staffed them, almost the entire opening hours

of the store for customer service. We didn't want the customer coming up to an empty counter.

But quite frankly, then the next question is, well, why not take them out? Replace them with productive selling square footage and quite frankly

handle the peak operating hours through portable technology. And that's what we're going to do.

Interestingly enough, if you carve out those cash wraps, we can do immediately and we are going to do immediately, that is a savings in labor o

$100 million. So as you can see, these processes of simplicity and really thinking through what's the right thing to do is really coming back in terms

of savings.

Advertising, I'm not going to go into a lot of detail here, because I think Michael did a great job of it yesterday in terms of in 2010 we reported 6%

of our sales was diverted towards advertising compared to Macy's at 4% and Kohl's at 5%. If we were to run at a 4% rate, that 2% differential

represents $360 million. Now, if you do that math of what Michael talked to you about yesterday in terms of the $80 million a month, that represent

in 2012 a savings of $200 million.

Now, what Michael and Ron believe is that over time we can actually incur more savings because we need that in 2012 to re-educate the consume

with regards to the pricing strategy. So over time, we'll be able to free those dollars up and take a look at whether we want to [redivert] it to othe

marketing and advertising or actually flow through the bottom line.

Home office.This is actually a picture of our headquarters in Plano and, no, we're not moving our headquarters anywhere else. It's going to stay in

Plano,Texas. Of our 150,000 to 170,000 employees, roughly 5,900 employees are housed here. Now, I talked about that accepted granularity and

the impact of the mushrooming effect as it relates to that. So clearly there are savings here

But what's interesting here, I'm not going to get into a lot of detail for obvious reasons, but what's interesting here is when we dug into this wha

we found was this accepted granularity created an environment that had eight levels of management when the average retailer has five to seven

and the more simplified retailers only have five.We believe in a flatter organization not a fatter organization.

And what was even more highlighted to me was the average span of control in terms of our home office and our support functions, the average

span of control was four, compared to the average retailer of eight. Now, guys, let's think about this. This is IT. This is planning. This is allocation

This is accounts payable, and the average span of control is four?

So this is one of the things that Dan and I are really digging in deep and that we have a plan for home office. But if we actually move to -- move the

needle to eight direct reports in terms of the span of control, that represents $90 million, almost 15% of our home office spending.The beautifu

thing is a majority of what we've highlighted today will take impact 2/1/12. It's right around the corner.

That $900 million that we're going to achieve over two years, the run rate of $900 million to hit in 2013, again, will allow us to operate at a sub-30%

SG&A rate in 2013. Now, the beautiful thing about this is this goes a long way to help self-fund the transformation.

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Now, I know what you're thinking. What will it cost? Well, no, we are not going to build cubes. We are not going to have glass stairs, and we are

not going to have surfaces of granite and stainless steel.

The beautiful thing about working for Ron and Michael is they're both right brain and left brain. Let me just tell you being in the industry that'very rare. These guys understand return on invested capital. Now, what they laid out yesterday was actually the shops that we're going to roll ou

within our 1000-plus stores. Each store is going to be different.

Now, over the 90 days, our teams have dug in and have been working with design firms. They've been working with vendors. We've even been

working with our product vendors to really understand the cost as it relates to this 100-shop rollout.

I've been able to identify, within a tight range, of what we think that the cost is going to be. And, I'm actually surprised at how low that number is

And a lot of it is because of the cost engineering that we're partaking as it relates to these shops.

Now, we know that we have a 1,100-store chain, of which we're going to impact all of them. So you take the fleet, those stores, we know that ou

1,100-plus stores are in different states of new versus old. And we know that to transform these into Ron and Michael's vision that some are going

to cost more than others. But we've layered that cost model onto our fleet to really hone in on what the real amount's going to be.

Now, I'm not going to tell you what that number is. And the reason why I'm not going to tell you that number is we believe that the number tha

I have in the model that allows me to tell you comfortably that we're going to self-fund can actually get better because we're working with the

vendor community as it relates to the fixtures. We're working with our brand vendors to determine their investment in this. So that number can

only get better.

But what I will tell you is we are going to spend $800 million in 2012 as it relates to the transformation. Now this in comparison this is $800 million

in total to the last couple of years we've been spending $500 million to $600 million. This $800 million represents the transformation of the firs

ten shops. It also represents investments as it relates to the store experience.This is some IT initiatives.

And more importantly, it represents the purchase and inventory of a lot of these pictures as we roll out in a very fast cadence into 2013.The reason

I tell you that is don't extrapolate $800 million.There's a lot in there.

So what does this mean to me? Well, clearly, by December of 2015, there will be the completion of the 100 stores. Ron laid that out for you yesterday

You saw that nice flipping calendar. But more importantly, the transformation that Ron's talking about, and what I'm talking about in terms of the

operational infrastructure will be fully complete by 2015.

Now, as Ron said, that's pretty amazing that we will absolutely be able to transform JCPenney in a timeframe that's right around the time for you

son or daughter to actually graduate from college. But more importantly, we are confident that we can fund this by cash flow from operations and

clearly our optimizing of our expense structure helps us a long way to actually accomplish that.

Here's what we know. Ron said yesterday he's confident that we can get to 40-plus margins. I said today that we're confident that we can get to

27% SG&A structure by 2015. Clearly, doing the math that represents a 13% contribution. That's in stark comparison to the 6% contribution tha

JCPenney provided in 2010, almost double or over double.

Now, what don't we know? Here we go. Sales. Now, clearly, for us to come out and tell you that we're confident that we can self-fund this

transformation, we clearly have some idea over the course of the four years what the sales productivity increases are going to be.We feel strongly

that we can achieve those.

But, I'm not going to really tell you what those are because one reason is we don't want to really cap what we think it really could be. And let me

just tell you there's two reasons behind that. One is what Ron talked about yesterday, the secret sauce, and I'll get back to that.

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Now, clearly, we're a new management team and we've got to build the credibility. But I can tell you from our past lives and those people that you

know me from Abercrombie & Fitch, we're not going to commit to anything that we're not confident that we can get.

Now, given those changes, Ron, Michael, myself, Dan and team really want to be very transparent, because I know what you're thinking. Man,there's a lot of change going on this year.We've talked about a lot of the changes that really impacting the last part of the year. But we want to be

very transparent.

So what we're going to do is Q1 through Q4 of 2012, we are going to have a face-to-face Q&A within five days of the earnings call. Ron, Michael,

the team will be there face-to-face to be able to answer questions that you have and that we're cognizant of the fact that we need to provide to

you a level of detail for you to understand that we're meeting the glide path as it relates to this transformation.

So let's really walk through -- let's recap. 2012, meet or exceed 2010 EPS. Stronger performance during the back half, Ron talked to you about the

changes in the back half of the year and the unknowns in terms of the front of the year in terms of how the customer was going to respond to the

new pricing strategy.

But we're confident with regards to this new simplified model that we're going to be able to meet that commitment.We're going to invest $800

million in CapEx. 2103, we're going to get to sub-30% SG&A expense rate. And 2015 transformation complete and self-funded.That's the recap.

Now, if you -- I have three things that if you take away really what you heard yesterday and what you heard today, we're going to simplify but we're

going to take action now.This is a management team with a bias to action, and you're going to see that.We're going to reinvest and we're going

to self-fund it, and we're going to transform this Company by 2015. But what's even more exciting is we're going to provide constant change and

newness to our customer month by month. So I'm going to leave this as a backdrop for Ron, Michael and Michael to join us upstage so we can ge

to Q&A. Pull up a chair.

Q U E S T I O N S A N D A N S W E R S


For those of you who weren't here yesterday or attending your first investor conference, Michael Dastugue is our long-term CFO. You're familia

with Michael. He's going to be up here today.This is Michael Francis, our President. I'm Ron Johnson. And this is Mike Kramer. And thank you fo

your presentation, Mike.


Yes.


Really appreciate it. So yesterday, the reason we split the investor meeting today from yesterday is with all the change going on, we wanted you

to have time to think about what were the key questions. And we actually set up a system where you could Web -- text us your questions in advance

and we would try to hit the highlights before we opened up to a general Q&A.

And so I'm going to walk through -- the four of us will walk through five questions that were seen very common that we'll try to address, and then

you're welcome to come up to the microphone and we'll take open questions at the microphone. All right?

The first question -- I think I need my clicker or can someone click it for me please? A very common question was this, how much do you expec

your sales to decline initially? What's the breaking point do you think? How far will you let sales decline before you make a no-go decision?

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Now, I'm not sure I fully understand. We are making the decision next week to change our pricing strategy. That is a permanent change. It i

grounded in a very strong understanding of consumer behavior and exactly at what price points you like to buy. So we have made the decision to

change our pricing strategy, and we are going to stick to it.

If we have to make an adjustment to the price, that'll be done item by item, as merchants always have. But the simplification of our pricing strategy

is a key piece of the transformation and that decision is made. And so we will have great everyday prices that are essentially about 40% below

where we set the prices last year and exactly where the customers started to buy in volume.

Then we'll have month-long values so the customer can shop on her terms.We think this is a huge competitive advantage. So to help you understand

that, like in the month of May when everyone will be marketing shorts and swimwear, while they are going up and down, we'll be at our best price

of the year the entire month. And so the customer will know that they can come whenever they want to get the key items of the season at great

value.

We do have a promotional strategy. It's just driven by a monthly cadence and not another. And then we operate clearance like everyone does. Bu

we've got a new way to do clearance, which we call best price Fridays, which will actually drive people to the store to buy clearance. See, historically

the last 20 years retailers have just put the clearance on the floor.Twice a month on the weekends when people get paid, we will have an even

to bring people into the store.

So those are the things that are going to drive our pricing strategy change. We believe in those in the long run. So we're going to stick with them

regardless of the initial response. So the real question is how long will it take for the customer to understand the pricing strategy, is I think what

people are asking? And what's the risk initially? All right?

Well, there's some interesting information that I'm not going to share in detail, but we've started to change our pricing over the last four weeks,

and we're at a point right now where most of the merchandise in the store has been changed to the new pricing, but without any marking, withou

any sign. And so we have been reading regular priced selling at JCPenney's now for 30 days, and every day we learn more.

And on February 1st, next week we'll get our first true read of the customer reaction to our pricing change. And we don't really know exactly wha

it will be, but wherever it starts we have high confidence that it will get better, and better, and better.

It will get better over time as our marketing accelerates, as television out there, as Ellen DeGeneres starts to talk about our pricing, all of our changes

as we -- people talk about us everywhere. Each month we'll reinforce that. As we go through the year, clearly customers will come to understand

the value in our pricing, which will cause improvement.

But the other thing is there are many elements of the transformation that kick in throughout the year. Michael Francis yesterday shared with you

the enthusiasm he has and I share over the merchandise improvements.

As he said yesterday, just like the marketing is so different from what we had in three months, our merchants with a different direction are having

a great time with new products.We're seeing improvements in merchandising, and merchandise presentation in the spring, but it'll be dramatically

different in the fall, and we expect that to be dramatically better. And so we expect improvement in the back half compared to the front half, right

Right?

Now as we did our guidance for the year, we've got to establish credibility. We clearly have guided with an expectation that sales will be softer in

the beginning than they will at the end. But wherever they start, they'll get better. All right? And so that's kind of our feeling about sales.

We are not guiding to sales monthly because quite frankly we want to run the business for the long term. And we want to have the ability to react

and adapt to the business as best we can to move the transformation along. And I don't want anyone at JCPenney to have pressure at a monthly

target when you're trying to execute a long-term strategy.

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So we're committed to our pricing, we expect it to get better as the year goes along, and we expect to have earnings that exceed 2010 during the

transformation. But we are very strong believers in our pricing strategy and in the year ahead.

Okay, the second question was about capital. How much will this transformation cost? How much capital will you be spending each year duringthe transformation? Will it be over $1 billion? All right, those are the kind of questions.

Well, those questions were asked before Michael's presentation, and I think Michael made it very clear, the key thing for an investor to know is we

are going to self-fund the transformation. At the pace we plan to do, we will have enough cash flow from operations combined with our curren

balance sheet, to fund the changes we're going to make.

A significant part of our capital, of the cash flow that we generate in the next few years will go towards funding the transformation at JCPenney

Right? But we believe we can self-fund.

This year, as Mike said, we'll spend $800 million in capital, which is for shops, but it's also for technology improvements and other capital improvements

That total is not for shops, but it will get us the 10 shops by the end of the year.

Now, the reason we are going month by month, and let me try to explain this to you, typically a retailer, when they invest in capital to improve astore, will remodel the entire store, right? And you've seen that. Let's go fix these stores because they're the oldest stores.

Well, when you do that, you really don't transform -- advance the opportunity to transform the business, because while it might be good for that

one store, it doesn't help all the other stores. And we've learned through Sephora, if you put in one Sephora shop it brings a new customer to tha

store, and there's a spillover effect on the entire store. And so we're going to be transforming month by month, shop by shop.

So when we roll out two shops a month, they go to all 1,100 stores. So we are transforming 1,100 stores simultaneously by adding shops, and we

think that can provide benefit to all stores. But the real secret here is that -- another thing that I learned at Apple, I hate to refer, but I learned a lot

there -- is that over time you can really engineer things, to make them more efficient.

And so when we build these first shops, and as you saw yesterday they're designed with a very simple fixture, we are going to get these things

lower and lower cost as we learn. As the shops start to perform, we'll understand exactly how much to invest to get the return on invested capita

Michael talked about in these shops. And so the amount it's going to cost long term depends a lot on how well we can engineer these shops, and

it will depend on how much vendors participate.

Now, one of the exciting things yesterday was we had -- you might not know this, but we had two presentations like the one many of you attended

with all of the vendors of JCPenney.We had over 1,000 people here yesterday, and we had a dinner last night adjacent to here.

And the merchants said the big problem now is that we've got too many shop ideas. So vendors are really excited about this idea of price integrity

presenting merchandise well.That's what they love to do, too, and so they're going to want to participate. And we are open to have them inves

capital to make these shops even better.

So we're hoping to get a lot of capital support from vendors to help with the transformation because this is truly in their interest, and they've already

demonstrated that through their enthusiasm. All right? So the capital question is $800 million today, self-funded, and we expect the efficiency to

go down as our improvements go up. All right. Anything to add to that, guys. No? Okay.

The third question, with regard to brands, we were hoping for more brand launches to be allowed -- to be announced yesterday. How can you

become the store for everyone with [no names] or no brands that will attract customers? Well, I think we made it pretty clear, that we're going to

start layering in new shops August 1st.

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Now, many of those are going to be brand new to JCPenney, but the last thing that we want to do is to close the door on our vendors. We wan

there to be an incredible competition for space. Scarcity is our friend.We only have 100 shops. Now, when you start to divide that in the store, like

the men's business is about 22% of our total. So there are 22 opportunities in the men's department.

Well, after we announced Izod there are 21. We talked about Arizona, there are 20, right? There's no better dream in the world for a manufacture

than a controlled merchandise environment. Right? So we don't want to announce these things until they're ready to come because we want to

choose from the best of the ideas, not what we know today, and we're open to the world.

Now, we want to take the best global brands and bring them to Penney's, like we did with Sephora and Mango.We want to bring the best designer

to the world, like we're doing with Nanette Lepore, and Martha Stewart, right?

We want to take our current brands or private labels and make them great brands, but we don't want to make those decisions today.We want to

let the market help us, because ultimately it's the combination of us plus all of the creative people in the world that are going to make these shops

come alive. And so we're not talking about the brands today, because we want to save that for a little bit later.

Michael Francis - JCPenney - President

Yes. A couple of other comments, I think yesterday we alluded to the fact that we shared a variety of concepts that we're going to be launching

later this year and into next.

And we alluded to the fact that there are 30 distinct work streams under way right now, evaluating other concepts where we have already determined

that there's interest in partnering with either a designer or a national brand. But it doesn't serve us well competitively to share too much of that in

these early days.

And secondly, something that I learned from my time at Target, to aggregate all that news into one headline today doesn't help us to maintain

our momentum.We want to be really thoughtful and punctuate the calendar as we move forward and celebrate these launches as we bring them

to life, because that's going to help us engage with the media and help us amplify this message and help us maintain our momentum.

So those are other elements, and we fully intend to share that news as it comes online and as we move forward with that execution. But those areimportant competitive issues that we want to focus in on and ensure that we're being very thoughtful about how we communicate and maximize

our reach and continue momentum.


I've learned from my career, that the best marketing is word of mouth, and my favorite marketing is free. And so it was interesting yesterday, the

lead story on Yahoo! last night was JCPenney's pricing strategy.

Well, that's wonderful, because everyone's talking about what's this new pricing strategy? That free marketing will help us with the transformation

and we want to make sure month by month we've got new news to share. So when we launch new partners, new brands, new shops, we want tha

to be news at that time and not news today. All right? But there's a lot of work under way.

A fourth question was on vendors. Vendors are saying that JCP orders are down 10% to 15% for spring 2012. Are you planning sales down tha

much? And if not, how do you drive sales up on less inventory? Interesting, right, because a lot of you talk to the market. Well, the truth is we have

reduced our commitments to vendors for the early part of the year.

Now, you might conclude they must expect the sales to be down.Well, my observation is we carry a lot of inventory in our stores. And if you look

at JCPenney's inventory turnover -- we didn't have time to detail today -- we turn our inventory at the same revenue per store significantly slowe

than our competition. And we talked yesterday how we're going to clean up the stores to reduce the clutter.

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We believe we can take our inventory down and have a better use of capital while still maximizing sales. So if orders are down it doesn't mean the

sales expectations are down.What it means is we want to turn our inventory faster, all right?

In my [system of ] retail, when you make the most money is when you chase the business, and we all know that, and you want to get in a positionwhere you are chasing the next ideas.Where you don't do well and where you have markdown issues is when you get heavy on inventory.

So with all of the transformation going on, we want to get in the position where we have liquidity, where we can fund the growth of this business

So just because vendor orders are down, which they are, it doesn't mean anything about our revenue.

Guidance, don't you think you are setting the bar too high -- or be careful not to set the bar to high during the transformation. Now, I don't know

what your reaction will be to the guidance we shared, but I just want to echo what Michael said.The most important thing to me in our relationship

with shareholders, and that's who we work for. Each of us works for our shareholders, and we work for the long term interests of our shareholders

The secret to that is credibility.

I come from a company that hasn't missed guidance 25, 30, 40 quarters. Right? Sometimes the street guides ahead and we miss the street guidance

But I really believe in credibility, and there is absolutely no way that guidance for 2012 that we didn't have extraordinary confidence we could meet

or exceed. So that's where I'll leave it.

So those are the questions that were submitted in advance. I'd like to open the mike now to any of you who would like to address any other

questions for us. And if you could introduce yourself, that would be very helpful to me and the team.

Q U E S T I O N S A N D A N S W E R S

Todd Duvick- Bank of America Merrill Lynch - Analyst

Thank you. Todd Duvick, Bank of America Merrill Lynch. I had a question for you about the balance sheet. Obviously, you inherited the balance

sheet the way you inherited the business, and the previous management team and Board of Directors had been very intent upon getting back to

an investment grade credit rating.

It sounds like with the self-funding strategy that you have, you're probably not going to be relying as much on the debt capital markets maybe

going forward. Can you talk to us a little bit about how the management team is thinking about its credit rating, which is currently below investmen

grade, if you have any credit metric targets or anything along those lines? Thank you.


Go ahead, Michael.

Michael Dastugue - JCPenney - EVP, CFO

Thank you, Todd. Michael. I think with regard to our balance sheet, I think we're still in a great position. We have -- probably end this week with

about $1.3 billion in short-term cash investments and then about another $150 million of cash in transit. So I think in terms of an explicit target fo

leverage, I don't think we have anything at this point. We continually talk about that with our Board of Directors.

And in terms of an investment grade guideline or a goal, I don't think right now that that's really where we're at. I think there's probably some

members of the rating agencies here today, so I wouldn't want to speak on their behalf.

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But I think all the things that Mike and Michael and Ron talked about over the last couple of days, I think that's going to rise the sales and profitability

of all of our stores, which long term is going to improve both, not only from an equity position our returns, but it's also going to improve our credi

profile. But I don't think at this point in time we want to lay out any specific leverage, metric or investment grade goal.


To build on that, we want a very strong balance sheet. And so while we self-fund we are monitoring the credit markets very carefully. And if there

are opportunities to strengthen our balance sheet, we'll obviously consider that. All right, thank you.

Adrianne Shapira - Goldman Sachs - Analyst

Adrianne Shapira from Goldman Sachs. Yesterday, Ron and Michael, you talked about the six Ps. One P that seems to be absent is the people. And

it seems like people who are shopping at JCPenney and the people who are working at JCPenney in terms of selling, tremendous transformation

but also a lot in terms of execution.

I guess my questions are, first, who's shopping currently at JCPenney, and how do you think this transformation changes who shops over JCPenneyover time and where she's shopping today? And then the second, as far as who's selling at JCPenney.

I know Ron -- obviously that's key at Apple, who's in the stores making this happen. You're asking a lot of the associates to really transform the

stores.Talk about the execution, and are they up to the task? And then I have a follow-up.


Well, thank you. Michael, do you want to take the first half or I can, whatever you like?


Well, I think I'd just comment I think yesterday -- so much of the new strategy was designed while, conceptually at least, having the customer atthe table with us. When we looked at the pricing strategy in developing fair and square, when we look at our visual presentations, as we look a

our promotion cadence, it was very much with our customer in mind.

So we believe that honoring our current customer and then developing a store environment and a merchandise assortment that's going to welcome

new customers into the fold is a critical aspect of what we shared yesterday.

As far as the people in the store, which you may want to comment on in a minute, I also would think broadly what we're seeing internally throughou

the enterprise is our teams are more engaged and more passionate than they've ever been. You're seeing that come through the marketing

expression that we shared yesterday.We're seeing it in merchandising and design and our sourcing organization.

The teams are prepared to win and excited to begin executing strategy in creating America's favorite store. So we're absolutely seeing our teams

our people respond with great vigor and enthusiasm for what we've mapped out.

And then I believe, fundamentally, that'll transform our experience, and broaden the range of consumers who currently list JCPenney as their

preferred shopping destination.

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Adrianne, let me try to answer the first question, if I could? I talked yesterday about JCPenney having about 3% market share. And the customer

in our store today is the customer who is interested in the merchandise that we carry today. And we care deeply about that customer. So job one

is to serve that customer better.

One of the great mistakes retailers make through the years, and you see it primarily in the specialty store industry, is a new merchant comes in.

And with a new merchandise direction, they confuse the existing customer who is shopping there, and it takes a long time to attract the new

customer.

So the first thing we ought to do is keep every customer we have and serve them better. Right? And so we're going to do that. And you saw

yesterday, some of the very first shops we roll out are for long-term JCPenney brands like Worthington and Arizona, right? And we want to serve

that customer. But over time we know that we can serve all America, and that's how it works.

When I go to JCPenney, when you ask who is the customer, I don't look at what they look like, I look at what they're wearing. If you're in the industry

all of our merchants can do this, we'll start to recognize the clothes they're wearing.We know exactly where they bought it because, unfortunately

we live in malls and we monitor these brands.

You can see someone in the JCPenney store wearing a Lacoste shirt, and you probably know that they can afford to buy something more than a

$9.99 polo. Does it make sense? So we're watching this very carefully. But because we're located literally the length of this auditorium from the

center of the mall in a lot of malls, we think with good marketing and great products we can get her to check us out.

So long term, we can have any customer we want, and that's our objective. But we've got to honor and protect the customer we have.That's job

one.We don't take a sales -- a big sales decline would be if we walked away from the existing customer, and we're not going to do that, right?

And on the people side, the key to me is fair and square is our business philosophy, right? But that includes, how we treat our customer. It also

includes how we treat our employees. And we've been here a short time, but we've spent a lot of time with the teams. So my very first thing I did

my first day at JCPenney is we took all 6,000 headquarter employees, we sat outside, and we talked about values. We did that for an hour.

The next day, Michael and I sat in a room about like this size, and we met hour after hour, in groups of about 800, with every employee in theCompany to lay out the first things we're going to do.

And we shared with them our pricing strategy at that time because they had to change all the prices. And we took Q&A, and we're spending a lo

of time trying to communicate.You can't communicate too clearly or too frequently, especially during a transformation.

Now, we've begun the process yesterday of communicating to our stores, because just like we couldn't tell you, we couldn't tell them until now

So they're just getting energized as we speak about all the new strategies.

But stores like -- people go into retail to serve customers. And so everything we're doing is designed to reduce the work that is operational, like

changing signs, so we can invest in things that you care about, which is taking care of somebody. Right?

So I think our stores are going to be incredibly enthusiastic about it. I think change is hard. I'm sure there are some people that are saying, my hour

are different, I wish I was doing this instead of that. But long term, when you do the right thing it's really energizing for the team. So I expect themto embrace our change.


Great, okay. And then my next question is for Michael. Today you talked about that unnamed department store that was challenged because of

vendor kickbacks, and then you also talked about merchants focusing on the product. Could you maybe reconcile that? Is that a change at JCPenney

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maybe in terms of how you're working with vendors so you don't get into that situation that unnamed department store is and carrying brands

that they shouldn't?


Well, yes, I mean, I think that -- personally I've never experienced that situation with JCPenney, so that unnamed department store was not JCPenney

But what I will do is just echo what Michael Francis said is that we want our brands to be productive. I want to make money off of pleasing the

customer, not making money through kickbacks.

I think that's incredibly important. It's incredibly important for the woman to be pleased and walk out of the store with a bag. That's really my only

point, because I think over time you'll wean her off. She will no longer come back. And you saw the 50% demise in terms of the market share.


Okay. I got the nod from our two head merchants, [Steve Lawrence] and [Liz Sweeney], and I'm going to answer this. I think one of the most broken

things in the retail industry is the relationship between the vendor and the retailer. Right?

It's way too complicated, and the vendor should focus on what they do best, and we should focus on what we do best. They ought to design and

source and deliver on time the best product they can. And we ought to present and market and sell the product as best we can.

And we shouldn't co-mingle our profit formulas.We shouldn't have all these games. They should produce merchandise at the best price they can

We should buy it, and we should just sell it. And we are going to radically simplify the vendor process.We have begun working with the vendors

on that. They're kind of thinking it sounds too good to be true, but we're going to do this.


Well, let me --


Just one more. But the goal here, as we grow our profitability we want to be the vendor's best partner.We're going to share our growth with ou

vendors, because ultimately, that's what going to reward us with their best ideas. So we're heavily focused on that critical vendor-retail partnership

And people love JCPenney's today, but we're going to make it simpler and better. So again, all the interaction is on merchandise and winning with

product and not managing profit margins.


Let me just add to that, too, is from a vendor perspective, which is what I was, what Ron is creating here is a dream for brand building. I mean, quite

frankly, what I've learned from some great brand builders, like Mike Jeffries, Steve Jobs, Ron Johnson, is that to control the growth of your brand

what you really want to be in control -- you've got to control -- you have to have pricing integrity, control your price point.

Over the last two years, I had product -- some of my best brands walk out the door at 40% off -- actually, it was 40% off before it hit the floor, because

the department stores were using some of the better brands to bring people in.

It's about pricing integrity, and it's about the buying experience. And with the shops and the pricing strategy that Ron has laid out, it's a dream fo

vendors as they want to grow their brand.

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I'm sure. So just to keep it simple, no markdown allowances at JCPenney?


Personally, that's what -- that's where I'd like to go. But it's interesting -- let me just make one point to that. When I talked to vendors about it, they

said there are times we want to provide the markdown allowance. There are times that we misdirected you, and we want to make room for new

merchandise. And so I don't want to be absolute, but in the highest level we want to simplify.

And I'll give you one more example. Michael and I were out on the West Coast meeting with the head of one of our big suppliers. And I haven't

been in the direct business for a little while, and I said now how complex has the business become? I mean when we buy a product, how many

different things do we have to earn to get money back?

And it turns out it was ten different items from advertising to presentation across three different divisions. So our finance teams who manage tha

relationship have to manage 30 separate things that we're mailing, proof of ads, et cetera, and that's crazy. It's just crazy. And so we just have tosimplify.


Yes, let me clarify, too. I didn't say that I didn't believe in terms of the markdown contributions with regards to the vendors. I do disagree with it

when it becomes a drug. And that's my point.


I'd just add that it's that approach which has allowed us in 90 days to have as many active work streams and collaborative ideas being developed

with the vendor community.That has been truly resonant as we get out there and work with the markets.That's what's enabling the speed --


All right.


-- of transformation.


All right. I promised not to go into that much depth on any more questions, but this is something we're very passionate about, so please go ahead

Bernard Sosnick- Gilford Securities - Analyst

You can go in depth with my questions.

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All right.


This is Bernie Sosnick.


It's got to be a good one.


Gilford Securities. I can't promise it will be. Retailers operating in large spaces historically have wanted sight line visibility for the customer, but also

for the protection of their merchandise so you can watch what customers are doing. If you put walls up all over the store, you're going to have tohave people watching the merchandise.

Have you thought about the potential shrinkage problem, which I think you have. It suggests to me, though, that you're probably planning on

having more people within the shops providing service. And I'm wondering if you can expand on those elements of your plan?


Sure. I'll take that, Bernie, if you don't mind? The way to solve shrinkage is not through people. It's through technology. All right? And we haven't

talked yet about our technology business, but we have just hired a new leader of technology named Kristen Blum, who is we think one of the

smartest in the world at this retail technology stuff.

She designed and rolled out the Apple Stores. She was so good Apple put her into the supply chain. She then went and redid all of Abercrombie'

system. But we're going to deploy technology to solve problems such as shrink.

RFID is a perfect example. RFID is ready for prime time. When merchandise has an RFID tag you cannot walk out with that merchandise. Right

Electronic monitors -- there's lots of ways to monitor spaces without people. So eminently shrinkage can be controlled through technology, and

so we are not going to use labor to protect the merchandise.We're going to use labor to serve the customer. So we are not at all concerned abou

that.


The other element that I was driving at is are you going to be putting more people into the departments to provide sales service because you did

allude to the Nordstrom formula yesterday?


Yes. Well, here's the answer, and the answer will be yes, because the key here is when you transform a business you've got to get people from

doing task work to doing service work. Okay?

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So a per fect example is our price change strategy that Michael alluded to. Last year, JCPenney printed 200 million individual 5x7 signs -- 200 million

signs. Each one of those not only had to be printed, but someone had to physically put that into the holder day after day, 40% off, 50% off, 42%

50%.

Now, that is not meaningful activity. When that goes away we get an opportunity to redeploy people, correct? And so everything we do that

improves efficiency is an opportunity to manage a shop. Right? And that's the key here is we've got to find a way to get our hours engaged in

serving customers. And that's what we're going to do.

A perfect example is our Sephora shop. If you go into the Sephora shop which delivers $600 in sales per square foot and look at the employees,

look at the training, they have to meet the high bar of a Sephora employee. And we've actually developed training programs with them, and

Sephora's actually adopted some of the things that JCPenney has done.

Well, when we create these shop environments, one of the expectations that the employees in the shop represent that brand. And so shop by shop

we'll be rolling out the right staffing for those shops.


That's what I wanted to hear.Thank you.


Thank you very much.


All right.


It's a good question, by the way.

Greg Melich - ISI Group - Analyst

Hi, thanks. Greg Melich, ISI Group. Ron, you talked yesterday about you want to be America's favorite store.


Yes.


And then we've talked a lot about categories and brands and 100 shops and competing for 22 men's categories. And I'm wondering -- maybe it's

not in stage one, but in stage three does the JCPenney brand and what you represent do you want to be in different categories?

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I mean could that -- of the 100 shops could we be back in electronics, back in TVs, back in other things, [primarily] more appliances or you name

it. Is that how you're thinking about it now or is that something that's way in the future or something that we could actually see in the next few

years?


I think it is an exceptionally great question, and the answer is probably we'll have new categories. But I really don't know yet. I spend a lot of time

as we all do, walking in stores, and I walk through different types of stores. And each time I see something new I kind of say, well, would that make

sense to a customer in the mix at JCPenney?

See, ultimately to the customer they see a portfolio of products that meet their needs. A perfect example is the discount store industry has always

had a great portfolio of products, the right mix of HBA, hardlines, softlines that's attracted customers. We know that because when the industry

started there were ten regional discounters. All of them perform well, even though they all execute it quite differently. People like the mix of tha

store and the size of that store.

One of the things the department stores did is they reduced categories (inaudible) [appeared] when the specialty store and the big boxes really

grew. Remember when toys, they got out of toys because of Child World and Toys R Us and others?

Well, now we're back to a point where there aren't really big boxes. And you look at consumer electronics, there's one left, which is really Best Buy.

And you see that in a lot of the industries. So the theme keeps evolving, but we want to curate shops that have great interest for the customer.

And so we're open to a lot of different types of shops.

And because we have set up these environments you have more flexibility and shops don't have to be large. And so we're exploring any and really

all alternatives, but in the short run the new shops that we add will be primarily in the categories we do today and trying to do them better. But

over time we'll experiment with a lot of things.

And we haven't detailed Town Square, but Town Square will clearly bring services and activities that are not in our store today, our traditional retai

stores, that are in neighboring locations. So bringing the mix up is a big part of the transformation.


Yes, and I would just add to that in that in the last couple of months when we were developing our ideas and our perspective on where we may

wish to go with new categories or new concepts, is allowing our merchandising and in fact our broader teams to get back out there and explore

the world for the best concepts the way that great merchants and great department stores used to curate the globe and look for the best ideas.

But we literally had people all over the world in the past 90 days, and we've been coming back. We've been talking about it together, and we've

been looking for consistencies. And I believe that what we've done is we created a compelling list of options and ideas which will inform not only

our core assortment over time, but also our Town Square idea.


Let me give you one more example because it's a good question. We have some really obviously voids in the assortment that just have to be

addressed. Like a perfect example is greeting cards. I mean, can you imagine a store of our size you go in to buy a gift and you can't buy a card to

go with it?

It's a highly profitable card. It's fashionable. It's a fun category.Well, as Martha Stewart said yesterday when we were working with Martha, she said

that (inaudible) in her whole life. She actually has the whole area set up which she calls Celebrations. And it's really wonderful merchandise.

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And so we're going to be bringing in a whole new idea that relates to the greeting cards that you find at paper stores or whatever into JCPenney

Now that will be part of the Martha Stewart Store. And so we're going to identify categories like that throughout the store that just make sense to

be in that know will add to the value.


And just a quick follow-on to that, as you go through that process could you envision a world where you would let the vendors actually have the

-- do the labor in that shop or own the inventory in that shop or that fundamentally want that service element to ultimately be what defines

JCPenney?


Now, that's a good question. So let me try to explain that for those of you who might -- I think I know where you're going.There's a company in a

great department store in London called Selfridges, which really was one of the first department stores to transform itself. And it basically leased

its space to a variety of stores in a lot of the models. In most stores then they paid rent like a landlord would.

We would consider any alternatives depending what the brand is, but our primary goal is to manage the shops, staff the shops, develop the product

do our job our self because that's where the highest absolute returns will be. But with every shop we don't want to limit people. We will conside

alternatives, and we just want the economics to support long-term shareholder value. Could you speak up a little, Matt, or move closer to the mike

Matt Boss - JPMorgan - Analyst

Yes. Matt Boss, JPMorgan, could you speak to the potential for a localization initiative around some of the store in store opportunities? So you've

spoken to the 100 store in stores by 2015, but would there be a difference between stores located in more upscale markets than store in store

opportunities for some of your lower demographic consumer markets?


Sure. Let me take that on real quickly. Clearly we have large stores at Penney's and we've got small stores, so we're going to have to edit the shop

content by store, right? And we'll have the ability to put the right shops in the right store we believe. Right? But localization will not be a primary

strategy at JCPenney because I think that is something that is exaggerated in its importance.

We were having -- I was in Chicago with one of the great retailers in the world, a guy named Philip Green who runs Topshop and others, and we

were talking about fashion merchandise and we were in Chicago. And I said, how do you assort your stores from Shanghai to London to Chicago?

And Philip Green said, the world is flat. It's incredible. What people love in Chicago is exactly what they love in Shanghai. Now, that's true. I think

the idea that what people want in Birmingham to Boston to Biloxi is exaggerated. And for all the effort you can put into localizing, it gets back into

the complexity that Michael talked about. It takes away from your ability to do just great merchandise everywhere. Right?

And so we're going to focus on getting our content right for all 1,100 stores and do that so well that if we miss a local item or two that's okay

because the things we do well will more than offset the opportunity that you can find in localization.

Matt Boss - JPMorgan - Analyst

Thanks. My second question is around square footage growth.You mentioned an opportunity longer term. Near term are there stores that you'd

like to close? Is there a rationalization impact to this? I mean off mall versus off mall how would that look over time?

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JCP 1.26.12 Analysts Meeting Day 2 Transcript