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JCPenney (JCP) is trading roughly flat after reporting Q2 (Jul) earnings this morning. We thought this would be a good opportunity to not only talk about the JulQ results, but also to provide an update on some big changes JCP recently instituted. As you know, JCPenney is one of the nation's largest apparel and home furnishings retailers with more than 1,000 stores across the US and Puerto Rico. JCP's historical focus has been on apparel for women, men & children as well as home furnishings, footwear and jewelry. However, JCP announced a few months ago that it's jumping back into the appliance business in a big way and it's trying to regain its dominance in window treatments.

Major Turnaround

In May 2016, JCP announced some major changes to its product categories. The company is powering up its Home business by incorporating an appliance showroom in nearly 500 stores and online at jcp.com. This strategic decision was driven by a successful three-market pilot that validated the company's return to the appliance industry. JCPenney will also be pursuing its former leadership position in window coverings by allocating another 25% of floor space to an enhanced presentation of ready-made curtains, blinds, shades and decorative hardware.

The availability of appliances in stores will correspond with those locations offering expanded window displays. As part of a comprehensive effort to improve its Home department, JCPenney will also test new initiatives with Ashley Furniture and Empire Today, a major player in the installed carpet and flooring industry. JCP has elected to add Signature Design by Ashley to its furniture assortment in select stores and jcp.com, providing JCP customers the ability to shop living, dining and bedroom collections.

JulQ Results

Turning to the JulQ results, JCP reported a loss, as expected, at $(0.05) per share, which actually was quite a bit better than market expectations. Revenue rose 1.5% year/year to $2.92 bln, which was about in-line with market expectations. Adjusted EBITDA improved 69% year/year to $233 mln. The goal is to achieve $1 bln in EBITDA for 2016. Same store sales comps at +2.2%, were basically in-line with market expectations, maybe a little light. But they did improve from the -0.4% reported for AprQ. The company reaffirmed its 2016 full year guidance for comps at +3-4%.

JCP says it's pleased with the sequential improvement achieved in JulQ, relative to AprQ. JCP is continuing to win market share and improve the bottom line. In JulQ, Sephora, Home, and Footwear and Handbags were the company's top performing divisions. Geographically, the Ohio Valley and Pacific were the best performing regions of the country.

Management says it's excited about the initiatives in place to drive incremental growth in the back half of the year with its appliance rollouts, new Sephora locations, center core refreshes, in-store .com fulfillment and its chain wide rollout of buy online, pick up in store same day. In terms of its .com business, JCP performed well in JulQ as the company builds its assortment and creates an overall better shopping experience for customers. JCP also launched all-new mobile app.

On the call, JCP said it saw sequential improvement in each of its merchandising divisions with all but one division experiencing positive comps. In fact, all of its divisions reported positive comps in the month of July. Its footwear and handbag business delivered strong comps not only due to an expansion of women's shoes and a relocation of men's shoes continuing to reap benefits, JCP is also seeing a strong response from its relaunch of the Liz Claiborne assortment of handbags.

Its Home business saw significant improvement on a YoY basis with strength in sheets, bath accessories, cookware, custom windows and furniture. JCP is also very pleased with the excellent results of its appliance businesses. The combination of appliances, an improved window presentation, Ashley furniture, Empire flooring along with JCP's dominant soft home presentation is very compelling. Even more importantly the early sales results in the store and other test stores have an excellent. The early reads on all of JCP's new home initiatives are very encouraging.

On the call, JCP provided an update on the progress of its new Home initiatives announced in May. JCP started its appliance rollout this spring and to date it has appliance showrooms in approximately 200 stores. JCP says it's well on its way to have over 500 stores outfitted with appliance showrooms later this fall. Thus far, appliance sales in-store and online are exceeding expectations. The company went live on JCP.com nationwide in advance of the Memorial Day weekend with over 1200 appliances available for purchase.

In terms of the expansion of its window treatment offerings, its pilot with Empire flooring and the addition of Ashley furniture to its assortment, JCP remains excited about its renewed focus on home and believes that its new strategic initiative will tap into the strong demand for home-related products. The company believes its new home initiatives will give it the ability to drive sales in 2H16, provide an increased defense against pure play e-commerce competitors while crating differentiation between JCPenney and the traditional mid-tier department store.

Conclusion

In sum, as you can see, JC Penney is going through a major overhaul. JCP believes that the current housing market presents a lucrative opportunity to diversify its Home assortment and strategically align with consumer spending patterns. By combining its soft home and window coverings merchandise with appliances, furniture and flooring, JCPenney's goal is to become a destination for home design and redecorating.

The stock is roughly flat today as it appears investors are interpreting the JulQ result as a non-event. It sounds like the changes to its Home assortment is more of a 2H16 story as the new strategy is just getting rolled out. Appliances can be a tricky business and JCP is making a bunch of changes all at once. It's still early and this will be an interesting story to watch develop over the next year or two to see if this retail chain can be successful in its turnaround.