J.C. Penney Company Inc. (JCP) recently delivered second-quarter 2011 earnings of 7 cents a share that came a penny ahead of the Zacks Consensus Estimate as well as the prior-year quarter’s earnings.
Strong performance of women's apparel and accessories and fine jewelry boosted the quarterly results, with the Southwest region contributing the highest revenue.
Behind the Headline
The quarterly sales of $3,906 million fell short of the Zacks Consensus Estimate of $3,928 million, and inched down 0.8% from the prior-year quarter. Total sales were adversely affected by the discontinuation of the publishing of Big Book catalogs. Internet sales through jcp.com crept up 2.8% to $326 million in the quarter.
Comparable-store sales inched up 1.5% during the quarter compared with a 0.9% increase in the prior-year period. J. C. Penney’s inclusion of ‘Liz Claiborne’, ‘Arizona’, ‘St. John's Bay’ and ‘Modern Bride’ brands to its portfolio helped to drive sales and improve traffic.
The in-store Sephora departments continue to outperform in attracting younger and more affluent customers. During the quarter, J.C. Penney opened 22 Sephora stores, bringing the total count to 276. The Sephora concept is expected to be a significant revenue driver.
The company’s gross profit fell 3.5% to $1,497 million, whereas gross profit margin contracted 110 basis points to 38.3%, reflecting higher promotional spending. Management now expects third-quarter 2011 gross margin to be marginally down compared with the prior-year period.
Other Financial Details
J.C. Penney ended the quarter with cash and cash equivalents of $1,551 million, long-term debt of $3,099 million and shareholders’ equity of $4,703 million. Year-to-date, the company deployed $295 million toward capital expenditures, and generated negative free cash flows of $215 million.
Sales and Earnings Forecast
The Plano, Texas-based retailer, J.C. Penney, provided guidance for third-quarter 2011 comparable store sales growth in the range of 2% to 3%, while total sales is expected to increase 250 basis points less than comparable store sales.
Management now expects third-quarter 2011 earnings between 15 cents and 20 cents a share, including restructuring charges of about 5 cents.
The current Zacks Consensus Estimate for the third quarter is 26 cents a share, above 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.
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 #3 Rank, which translates into a short-term Hold recommendation.
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