J.C. Penney Earnings Preview Q3



J.C. Penney Earnings Preview Q3

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J.C. Penney (NYSE:JCP) will report earnings after market closes on Wednesday, November 12th. The company is still recovering from a loss of customers in Fiscal Year 2013 from mismanagement from previous CEO Ron Johnson. The company is showing signs of narrowing losses under current CEO, Mike Ullman as he returned the company to previous merchandising and pricing strategies that had  driven the company’s profits prior to Johnson. The company has recently announced that Ullman will be succeeded by Marvin Ellison in August 2015.

We did a story on Marvin Ellison, worth reading for J.C. Penney Investors. Read: Marvin Ellison Meet J.C. Penney

Operating Losses expected to Narrow

While the 3rd quarter can be a tough quarter for retailers it is expected the company will show improvement in sales and lower clearance markdowns and a higher percentage of private brands which carrying better gross margins. The company relaunched private brands like St. Johns which were dropped in FY 2013.

3 part Growth Imitative

The company discussed a 3 part growth initiative at it’s recent analyst day.

  1. Center Core –  Beyond bringing back private labels as previously mentioned. The company will go back to the basics with accessories, beauty, footwear, and intimates. These emotive categories drive more trips to the store and get cross selling.
  2. Home Store – The Home Store was completely demolished by Ron Johnson and it has had to be overhauled.
  3. Omnichannel – Omnichannel refers to a companies initiatives to combine internet and brick and mortar creating seamless shopping experiences and the company believes it can create an experience that will set them apart.

Susceptible to heightened promotional activity

The company continues to be in a state of flux and will have a higher sensitivity to a weak holiday market or heightened promotional activity. J.C. Penney needs to make progress.

Company has guided for $1.2 billion in EBITDA by 2017

The company has targeted $1.2 billion of EBITDA in 2017. J.C. Penney will need to bolster margins, cut back on spending and grow sales by 5.4% per year to achieve the goal.

Beginning with the 4th Quarter of 2013, the company has had 3 straight quarters of sales growth and increased comparable store sales 6.6% while improving SG&A 450 basis points and EBITDA $600 million.

Investors will look to see that these trends continue.

Wall Street Expectations

Analysts are expecting the company to lose 78 cents per share, compared to a loss of $1.85 per share in the same period year ago. Sales are expected to be at ~$2.8 billion flat from the period a year ago.

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