Jan. 26--NEW YORK -- Shares of J.C. Penney Co. shot up 19 percent Thursday after the retailer explained how it plans to pay for its transformation and said it still expects to earn a profit this year.
On its second day of meetings with investors, Penney's new management team said it plans to cut $900 million in annual expenses over the next two years.
Savings will come from its store and Plano headquarters operations and from reduced advertising costs. Beginning Feb. 1, Penney will replace its promotions-driven prices with everyday low prices that are supplemented with monthlong sales and clearance sales on the first and third Fridays of each month.
Penney is lowering merchandise prices an average of about 40 percent under a program its new CEO, Ron Johnson, calls "fair and square" pricing.
Chief operating officer Michael Kramer said the retailer will spend $800 million in 2012 to set up 10 new shops in all 1,100 stores by August and develop new iPad and smartphone apps. That compares with $500 million to $600 million that Penney has been spending in recent years.
The good news for Penney's 140,000 employees, including 8,500 in the Dallas area, is that no stores are closing. Penney store employees got their first briefing on management's new ideas Wednesday.
Johnson said that Penney's store sizes vary widely, but all the stores are profitable and fill needs in small towns. "I have visited stores in Rylander, Wis., Medford, Ore., in Washington state and around Salt Lake City. They're all different sizes," Johnson said. "People say, 'Boy, they look tired.' Then you get back and look at the financials, and that's really pretty."
Of course, Johnson and his new team consider all Penney stores tired, hence the plans.
Stores will have 100 shops similar to Sephora and MNG by Mango by 2015 and a "town square" in the middle that's still being developed. Most department stores put jewelry, cosmetics and accessories in the middle of their stores.
Penney officials didn't address whether staff cuts will be part of the $900 million savings. But over time, some jobs will change as part of the changes or be eliminated.
Penney's transformation includes trimming back the 400 brands it currently sells to the 100 branded shops.
Buying, pricing and allocation staffers devoted to those brands may do something different at the company or their jobs will go away.
A Penney spokeswoman said it's too early to talk about staffing levels since the transformation will also generate new needs and procedures.
Penney will report fourth-quarter results in February.
For 2012, management said it expects to meet or exceed 2010 earnings per share of $2.16 on an adjusted basis, $1.59 a share on a net basis.
Johnson also said the company will stop reporting monthly sales, following chains such as Wal-Mart and
Analysts asked whether Penney expects to have lower sales initially.
"Wherever sales start, they will get better," Johnson said. "We want to react and adapt as best we can, and I don't want anyone at J.C. Penney feeling monthly pressure while we're putting this transformation in place."
Also, Penney will no longer offer quarterly guidance but will forecast on an annual basis.
Johnson promised "face-to-face meetings" with analysts within a few days of each quarterly earnings release, and those sessions will be webcast live.
One analyst asked why the topic of online shopping was absent from the two-day meetings. New tools are rolling out in February and April for mobile and online shopping, Johnson said. He considers mobile and online sales key to any store's future but said there was a lot of ground to cover at the meetings.
"There's not a single retailer" that has figured out a strategy for integrating online shopping with physical stores yet, Johnson said. "I think in five years, we'll look back and we'll think this is the dark cave-keeper days."
Penney shares traded at a 52-week high on Thursday and gained $6.44, or 19 percent, to close at $40.72.
