J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported sales results for the four-weeks period ended August 27, 2011. The company’s comparable-store sales for August inched down 1.9% compared with an increase of 2.3% in comparable-store sales for the same period last year.
Delay in back-to-school selling season and negative impact of hurricane Irene dented the results of the company. Total sales decreased 4.5% to $1,374 million.
During the period under review, The Plano, Texas-based J. C. Penney registered comparable-store sales growth across women's accompaniments and men’s apparel, with the southwest and southeast regions recording maximum sales.
The company’s comparable-store sales for the thirty-week period crept up 2%. However, total sales inched down 0.9% to $9,223 million.
The in-store Sephora departments continue to attract younger and more affluent customers. These are part of J. C. Penney's strategy to gain competitive advantage over drug stores, which gave their cosmetic sections facelifts in the recent years. The Sephora concept instigates confidence and is expected to be a significant revenue driver.
Thus, the company announced the extension of the in-store Sephora and MNG by Mango, with total number of locations reaching to 297 and 500, respectively.
J. C. Penney’s well diversified supplier base, compelling private and national brands, marketing campaigns, point-of-sale technology initiatives as well as effective cost and inventory management should bode well for sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost its market share.
However, the global credit markets have recently undergone significant disruption creating difficulties for the companies to obtain financing on reasonable terms. This could considerably increase cost of borrowings, diminish the ability to obtain additional financing or refinance the existing long-term obligations, and may also deter J.C. Penney’s expansion plans.
Moreover, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.
J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United Statesand Puerto Rico.
Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, J. C. Penney holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.
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