UPDATE 1-J.C. Penney CEO sees return to growth this year -CNBC

Wed Feb 6, 2013 1:27pm EST

* Says will "self-fund" next steps in transformation

* Says more important to draw in new younger and more affluent shoppers

* Still on pace to open 30 boutiques this year

* Shares down 3.5 percent (Adds quotes from CNBC interview, background)

By Phil Wahba

Feb 6 (Reuters) - J.C. Penney Co Inc Chief Executive Ron Johnson still thinks the department store operator will return to growth in 2013 despite severe sales declines in fiscal 2012, he told CNBC in an interview on Wednesday.

Penney, which operates 1,100 department stores, began a turnaround a year ago that called for the elimination of most coupons and sales events, along with a four-year transformation of its 700 largest stores into a collection of 100 shops in each store for brands like Levi's and PVH Corp's Izod.

"I believe we will return to growth this year," Johnson said.

Sales collapsed 23.1 percent in the first nine months of the fiscal year as long-term customers, trained for years to seek out discounts, balked at the pricing strategy.

But Johnson said that the arrival of new shops for brands like Joe Fresh, coming in mid-March, and a new home goods section anchored by Martha Stewart products in May will bring in the new customers Penney needs to grow.

"The new JCP is coming out of the ground and we think that's going to allow us to return to growth," Johnson told CNBC in an interview from a Penney store in Dallas. "It's even more important to attract new customers, and that's the key to this."

Penney is still on pace to open another 30 of the boutiques in 2013, he added.

Initial results of the first batch of boutiques, opened last summer, were promising, with sales per square foot well above the store average.

The company has lost more than half its market value in the last year, and many on Wall Street expect disastrous results when Penney reports its holiday quarter results at the end of the month. UBS forecasts same-store sales to be down 28 percent.

Faced with an exodus of the traditional Penney shopper, who Johnson said was older and poorer than those at its rivals, the company has backtracked partially on its no-sales, no-coupons approach and will now hold sales for special events like Valentine's Day.

But given the depth of the sales hemorrhage and the downgrade of its debt to junk status last year, there have been doubts about whether Penney will have enough money to fund its transformation, set for completion in 2015.

Johnson, who said he has the backing of the Penney board, reiterated his intention to use cash from operations to fund the project, though he did not exclude borrowing money if need be.

"We've yet to tap into the (debt) revolver. It doesn't mean we wouldn't at some point."

When asked about a New York Post report that Penney was planning to cut 10 percent of staff at its Plano, Texas headquarters, Johnson said only that the company needs the "right cost structure."

"The number one priority is to return to growth. It's also the No 2 priority. It's the No.3 priority. We want to return to growth."

Shares were down 3.5 percent in afternoon trading at $19.12. (Reporting by Phil Wahba in New York; Editing by Phil Berlowitz)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.