J C Penney Company Inc (JCP) Continues To Be On a Strong Footing

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J C Penney Company Inc (NYSE:JCP) is probably one of the few companies in the retail sector that are bucking the general trend witnessed in the last few years. Even the bigwigs are struggling as they tried to close the stores or convert them into fulfillment centers to meet the online orders, which is yet to show a big jump for those, who relies on in-store sales. That is because of the strong hold enjoyed by Amazon.com, Inc. (NASDAQ:AMZN) in the online marketplace with several other offers like free one-day deliver on payment of a yearly subscription to its Amazon Prime program. As far as JCP is concerned, the turnaround plan is yielding its expected results, and the upcoming years could be a crucial one to retain the gains and march ahead. Let’s look at the gains and how it could reflect the stock price.

Question Of Extending The Improvements

J C Penney Company Inc (NYSE:JCP) probably owes the changed impression to its new CEO, Marvin Ellison. The stock is trading less than two-figure mark currently considering that it was trading over $40 a few years back. It was tough to blame the company as a whole as the retail sector environment has been a challenging one. For instance, the weakness in the sector dragged down the S&P 500 department store index by over 35% after the middle of the last year. However, if there was one company that bucked the trend, it was the JCP. One of the reasons was that not many were willing to bet and waited on the sidelines as some of the investors wanted more evidence of improvements to keep faith in the stock.

It was because of the improvements in the performance, J C Penney Company Inc (NYSE:JCP) has been in a position to deliver positive surprises. For instance, in the last year’s first quarter, its positive percentage was 25.0% and in the two subsequent quarters, it was 14.6% and 14.5%. In the fourth quarter, which involved the holiday season, the positive percentage was a big 69.6%. Therefore, there was enough evidence of its turnaround efforts proving to be gainful. Analysts have also boosted their expectations for the first quarter. They estimated a loss of $0.41 a share three months back and now expects a loss of $0.36 a share only.

Entry Into Fresh Categories

As part of the efforts to turnaround J C Penney Company Inc (NYSE:JCP), the retailer made its intention known to the investors that it would not mind in selling appliances again if it served the purpose. The company was doing it for the first time in over three decades. The advantage is that Sears Holdings Corp (NASDAQ:SHLD), which often occupies the same mall that JCP occupies, were not having good times with the sales. That meant the JCP could attract or wean away the consumers from Sears mainly because of the convenience as the retailer has been well-positioned. Also, the company was not doing just as a matter of fact. It reviewed the searches made by its customers on appliance on its website. The company found that there were customers, who were waiting to buy such products, and wanted to tap them.

Therefore, as part of the testing program, J C Penney Company Inc (NYSE:JCP) commenced the program on February 1. The objective was simple, i.e. to sell appliances from the selected 22 stores. With more than 1,000 stores, this small store base would not provide any big impact on its financial numbers in the first quarter. However, it could play a key role of beating or missing the bottom line. The expectation is that the move should provide a promising growth opportunity for the upcoming quarters. Similarly, the company unveiled Belle + Sky in February. That is a new private label with a focus on millennials and put into piloting purpose in some of the selected stores only. It is quite natural that the retailer saw the millennials as an important area of growth and unveiled the two programs.

Improving Momentum In Comps

For any retailer, comparable store sales are important and J C Penney Company Inc (NYSE:JCP) is no exception to this rule. If the company made few pilot programs in the current year, the preceding months indicated that its comps performance was not only strong but was also witnessing an improved momentum. There were only a few retailers that posted significant comps growth. For instance, in November and December, JCP witnessed 3.9% growth in its comps. That improved further to 4.5% in the following month. At a time when most of the retailers were struggling for COMPS growth, it has kept an ambitious target of 3 – 4% growth for the current fiscal year. As the turnaround efforts are yielding results and demonstrated in January COMPS, there is an expectation that the company could reach its top end of the target.

It is a regular practice that whenever any firm finds the going tough for growth, their immediate focus is on slashing the operating costs. J C Penney Company Inc (NYSE:JCP) too has been following the footsteps. This was evident in the last year’s performance when its S,G&A expenses dropped 2.7 percentage points. The pricing power is another factor, which was also showing improvements as the year gone by witnessed 1.2 percentage points enhancement in gross margin. The company was also conscious of the online sales. If the research firm, Complete, data is to be true, its website traffic witnessed 31% growth in March to 11.6 million unique visitors. Though such figures do not mean that it would be translated into revenue, the fact was that it attracted the consumers and remains as a bullish sign.

Conclusion

J C Penney Company Inc (NYSE:JCP) has made solid progress in the last minimum one year and the potential of the turnaround is not only more promising but is becoming a reality one. Its new CEO has been given the due credit and seen as a game changer for creating value to its shareholders. In a nutshell, there is a less in owning the stock and more potential to offer upside rewards.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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