J.C. Penney Co. (NYSE:JCP) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Deborah Weinswig – Citigroup: Mike, let me just say it’s fantastic to have you back. Can you talk about marketing, what’s happened since you’ve been back, where are we now and where are we going?
Mike Ullman – CEO: I think that marketing is obviously paired with our sales promotion function. We think that we have strengthened our messaging and marketing approach. I think that we’re very focused on the key shopping occasions throughout the year, so we can focus our spending on the times the customers expect to be shopping, probably about over 20 times that we’ve identified the customer really expects to be in the marketplace. We think we have market share opportunities clearly. We don’t get all of our spending at this time, nor we ever had all of the spending, so she crossed shops. So, messaging what we’re about is very important. We need to know who she is and what she expects. I think the addition of coupling that with strong sales promotion that includes clarity to the offer. I think you will see our sales promotion vehicles will be more impactful, less cluttered, but very clear offers in terms of the price and the integrity of what we’re selling. So, we feel very good about marketing and messaging. We’ve obviously been dark for a long period of time in terms of the way the customer expects to the shop with us. We’ve had the home store closed for an extended period of time and home is probably the most promotional part of the department store. So, while we’re early in this process, we’re quite encouraged by the reaction to the Mother’s Day marketing, as well as our so-called apology media in the last three or four week. So, marketing and sales promotion is very important part of our recovery of traffic. We measure very carefully the traffic in the stores as well as the purchase conversion.
Deborah Weinswig – Citigroup: My last question. There were two words I picked up from the press release which I thought were very important, which were loyalty and listening. Can you talk about what you are doing in terms of extending loyalty to your customers and how are you listening to you customers?
Mike Ullman – CEO: Let me start with listening. I think we’re using new techniques in terms of understanding consumer insights. We benefited from this new approach by being able to test media and print before we actually run the promotion. I think our television spot, particularly the first one was very well received. I think it was the number one social media conversation for several days. We believe part of that was because of the pretesting we did of various messages. We wanted to make sure that customers understood that while we had lots of changes, some she liked, some she didn’t like so much, and that we had listened. So listening is a very important part going forward, not only to our customers, but also to our associates. I’ve spent much of the last 700 hours since I’ve been awake in the job listening to our associates, particularly those that are leading in the stores and customer-facing associates, and they are eager to tell us what they like and what they don’t like, and I think we’ve tried to aggregate that information to be able to act on things that are quite straightforward to fix. As to the rewards part, we more or less changed our rewards approach with only one level of reward. We (will) go back to a tiered approach that customers clearly told us they appreciate being rewarded for the frequency and size they are purchasing, so you’ll see that come back into what we do.
Capital Expenditure Outlook
Paul Lejuez – Wells Fargo: Just a couple questions. One, your payables to inventory ratio Ken I’m just wondering how we should think about that, how that progresses throughout the year and how that looks at the end of the year. Second, Mike and/or Ken, from a CapEx perspective, what should we be thinking about as we look out to next year, what kind of number will we end 2013 at, and just how should we think about the investment at the store level going forward? And then Mike just curious about your thoughts on expenses and whether or not you think that you’ve cut too much over the past year and if you need to add back some expenses…
Mike Ullman – CEO: Ken will address the first point on payables.
Ken Hannah – EVP and CFO: We’ll start with payables. So we’d made a number of improvements in our working capital throughout the course of 2012 and if you recall we actually had a payables level that was about $85 million over-stated. So that’s been corrected in Q1 with some payments that we made in the beginning of the quarter. But what you see today is reflective of the current business and the arrangements that we have. So I would expect it to remain fairly constant with what you are seeing today as we go throughout the year.
Mike Ullman – CEO: Well as to the CapEx as you may realize with the major home store, 505 home store installations almost complete. That the vast majority of our CapEx for this year has been committed so it is probably less than 10% after we account for the major spending on home remodel and the rest of CapEx for the first half of the year, about 10% left for the remaining of the year. We don’t foresee major level of CapEx for attractions anywhere near the level that’s been for the last year or so. It is premature to talk about next year’s CapEx at this point. Now on expenses I am pleased to say that having a lower expense structure is a huge advantage as we grow volume coming back out of this abyss. That we’ll be able to capitalize on the bottom line leverage we’ll get out of that. Specifically to your question there maybe few areas where we went a bit too far but I don’t think it’s a material part of what we took out and we’ll make those decisions intelligently based on the productivity that we can gain by putting it back in several places. We may find savings in other places, so I think the level of expense reduction is probably about right.