J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently delivered third-quarter 2011 earnings of 11 cents a share that came way ahead of the Zacks Consensus Loss Estimate of 12 cents a share. However, it plunged 42.1% from the prior-year quarters earnings of 19 cents a share.
The company’s strategic initiatives to reduce costs coupled with the healthy performance of women's accessories and men’s apparel boosted the quarterly results, while, southeast region brought the highest revenue.
On a reported basis, including one time items, the company reported a loss of 67 cents a share.
Quarter Details
The quarterly sales of $3,986 million fell short of the Zacks Consensus Estimate of $4,021 million, and declined 4.8% from the prior-year quarter. Total sales were adversely affected by the discontinuation of the catalogs business. Internet sales through jcp.com decreased 5.4% to $341 million in the quarter.
Comparable-store sales inched down 1.6% during the quarter compared with a 1.9% increase in the prior-year period.
The in-store Sephora departments continue to outperform in attracting younger and more affluent customers. During the quarter, J. C. Penney opened 32 Sephora stores, bringing the total count to 308. The Sephora concept is expected to be a significant revenue driver.
Moreover, the company notified that it has also expanded the MNG by Mango and Call It Spring by The ALDO Group to 500 and 505 locations, respectively.
The company’s gross profit fell 8.9% to $1,489 million, whereas gross profit margin contracted 160 basis points to 37.4%, reflecting lower sales and higher promotional spending. Management now expects third-quarter 2011 gross margin to be reasonably down compared with the prior-year period.
Other Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $1,085 million, long-term debt of $2,871 million and shareholders’ equity of $4,555 million. Year-to-date, the company deployed $469 million toward capital expenditures, and generated negative free cash flows of $736 million.
Sales and Earnings Forecast
The Plano, Texas-based retailer, J. C. Penney, provided guidance for fourth-quarter 2011 comparable store sales to remain flat to up slightly, while total sales is expected to decrease 250 to 300 basis points less than comparable store sales.
Management now expects fourth-quarter 2011 earnings between $1.05 and $1.15 a share. However, on a reported basis, including one times items, earnings are expected to be in the range of 64 cents and 74 cents a share.
The current Zacks Consensus Estimate for the fourth quarter is $1.14 a share, which lies near the upper end of the company’s guidance range. Following, management’s outlook, we could witness a correction in the Zacks Consensus Estimates in the coming days, with analysts tweaking their estimates in line with the company.
J. C. Penney’s long-term growth target is to achieve earnings of $5.00 per share in 2014, on the heels of compelling private and national brands, redefined jcp.com platform, cost containment initiatives, closure of underperforming units and restructuring of supply chain.
Moreover, to drive sales and improve traffic, J. C. Penney added ‘Liz Claiborne’, ‘MNG by Mango’, ‘Arizona’, ‘St. John's Bay’, ‘Modern Bride’ and ‘Call it Spring’ brands to its portfolio.
Recently, J. C. Penney entered into an asset buyout agreement with Liz Claiborne Inc. (LIZ) for $267.5 million.
Liz Claiborne brands have a mass appeal, and J. C. Penney’s inclusion of these brands to its portfolio has helped it augment sales and improve traffic. These brands have persistently exceeded the company’s expectations and we believe that their acquisition will definitely pave the way for continued growth and innovation.
However, the economy still remains tough. The company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, sluggishness in the housing market, and high unemployment and household debt levels, which may affect their spending.
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 States and 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.
PENNEY (JC) INC (JCP): Free Stock Analysis Report
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