J.C. Penney Co Earnings Call Insights: Management Infrastructure and Online Sales Outlook
Charles Grom – Sterne Agee: Mike, I was hoping you could address the management infrastructure that you have around you, where are the holes and when do you expect to make those additions to the team?
Myron E. Ullman, III – Chairman and CEO: We have an executive board, at this time I believe we have 22 on the executive board. We have an interim CIO, which I expect that position to be filled for this fall. We have an interim person in the property development category. The rest are fully employed and very capable and recovery strongly that we have the team that affects with the turnaround.
Charles Grom – Sterne Agee: And then you talked about the comp turn during the quarter getting better, I wonder if you could break that out apparel versus Home for us?
Myron E. Ullman, III – Chairman and CEO: Well clearly the Apparel is much stronger than Home. Home struggled. We expected Home to improve obviously when the new store shops had opened and quite the opposite happened. We actually have less productivity in the new Home Stores than we do in the stores that didn’t get a Home Store. So, merchandising challenge to say the least. Apparel actually, women’s apparel is actually strengthening coming into fall season, so that’s been our largest category were quite positive about Shoes and Women’s Apparel at this point…
Charles Grom – Sterne Agee: And then for Ken, with regards to your expectations to end the year with I think you said $1.5 billion in cash liquidity, could you help us out with few of the buckets to get there in terms of where you expect inventory levels to finish $1.2 billion any further increase your expectation for an increase to the valuation for your DTA. I think you said zero percent tax rate for the back half. And then what your overall working capital expectations are going to be just to help us get to that $1.5 billion?
Ken Hannah – EVP and CFO: Yes sure, so let’s start with the tax valuation allowance, there is no economic impact associated with that as Mike mentioned that’s accounting. So, as our deferred tax assets that include our net operating loss carry forwards have exceeded our deferred tax liabilities. We put up the evaluation allowance. And so as we would continue to generate losses, we would continue to provide for that. As the Company returns to profitability we would expect those deferred tax valuation allowances to reverse and come back through income. So, there is no impact on liquidity that’s associated with that. And that was about $0.99 impact in the quarter. From working capital standpoint, as most retailers we do plan to continue to invest in working capital in the third quarter in advance of the holiday and then you see that all come back in the fourth quarter in terms of an inflow of cash and then actual net inflow from working capital standpoint. And so we really don’t have anything that’s all that unusual. We are not assuming that we see some huge trend change in the business, I think when we look at what we are seeing right now, over the last several months and the improvements that we have experienced and then what we are seeing early here in August, I think we are comfortable that the $1.5 billion liquidity is in line for year-end.
Charles Grom – Sterne Agee: Could you just touch on inventory for us?
Ken Hannah – EVP and CFO: I mean inventory we expect to see that go up a little bit in Q3 and then that would reverse back in Q4. So, overall, I think you’ll see inventory levels by the end of the year that are down from where they are today.
Online Sales Outlook
Matt Boss – JPMorgan: So, online improvement in the quarter was pretty significant. Mike, in your experience, do you think this represents a forward indicator for aggregate sales and with the comments around back-to-school improvement, is positive same-store sales in 3Q – is that the expectation?
Myron E. Ullman, III – Chairman and CEO: Well, obviously dotcom’s a big opportunity for us. We dropped about $0.5 billion in internet sales last year by disconnecting the merchandise assortments from the online assortments. So, the fact that they were not congruent, made it very difficult for store associates to access online to get additional merchandise for the customer to fill an order. By reconnecting and realigning the merchandise assortments, the business popped almost immediately. We expect it to get progressively better. We’re encouraged by the trend in each week, we’re seeing more store referrals to the internet. So, that’s what gives us the confidence. We most recently, we were just cited in a Wall Street Journal study I believe it was, we had the second best back-to-school online business behind Wal-Mart. That tells us we’re back in the game, and we expect to be in the game, all the way through the rest of the year.
Matt Boss – JPMorgan: The forward indicator for total sales, and is positive same-store sales in 3Q, is that the expectation?
Myron E. Ullman, III – Chairman and CEO: Well, it would be my expectation we’d come out of third quarter on that kind of a trend, but we still have a lot of work to do to work through, essentially as you well know, if you put things in the store the customer doesn’t react to in one quarter it tends to be liquidated the next quarter. We still have some residual liquidation coming out of the second quarter of inventories that were bought for the previous management team that for different concept and we are working our way through that. I’d also note that our August performance is not only been impacted by the difference in traffic due to free haircuts. We also had a significant clearance a year ago in terms of number of units that were flushed through the system in August which added sales, but frankly more or less very difficult on profitability. So, we are up against that in August as well as haircut traffic.
Matt Boss – JPMorgan: Then Ken, could you help walk us through the bridge between the total available liquidity of $1.85 billion and the ending cash balance of $1.5 billion. I think specifically I’m interested in the letters of credit versus 1Q. And then finally looking forward, do you guys think that the Company would need any outside liquidity injections going forward or go with what you have longer term.
Ken Hannah – EVP and CFO: Yes, so the difference between the cash and the liquidity is simply the unused portion of our credit facility, and that does not include any – it takes into consideration the current outstanding letters of credit in any anticipated increases. So, that’s what the difference is.
Matt Boss – JPMorgan: Then, looking forward do you think you would need any additional outside liquidity?
Ken Hannah – EVP and CFO: We’re certainly, as we look through the end of the year, the $1.5 billion of liquidity that we have projected we are not assuming that we need any additional financing.
A Closer Look: J.C. Penny Co Earnings Cheat Sheet>>