J. C. Penny Shares Fall More than 10% on Outlook Revision
Shares of J. C. Penney Company, Inc. (JCP) nosedived 10.9% yesterday after the company slashed its comparable-store sales guidance for the third quarter of fiscal 2014 at its Analyst Day meeting. Comps are now expected to rise in low-single digits as against the earlier projection of mid-single digit growth.
Lower-than-expected sales in September coupled with a difficult retail backdrop compelled management to cut the outlook. The company’s new initiatives, which it outlined at the meeting, while reiterating guidance for all other key metrics for the quarter and the fiscal were eclipsed by the revised forecast.
Among its initiatives, the company plans to rejuvenate key areas like beauty, jewelry and fashion accessories to generate higher footfall, develop e-commerce with special focus on mobile commerce and additional facilities like same day shipping and delivery along with enhnacing store productivity of its home stores.
The company also plans to open more Sephora stores across several other locations and has partnered with The Walt Disney Company (DIS) to bring over 100 Disney shops at its outlets by 2015 back to school season. It has inked a deal with Hallmark to experiment a hallmark shop concept in 15 of its locations by this fall.
In addition, the company will bring together a compelling assortment of brands both in house and other big national brands at the J. C. Penney stores to drive traffic. As per the company, these initiatives provide an opportunity to generate $1.2 billion in EBITDA by 2017. The company expects to realize incremental sales of $2 billion over the next three years implying a mid-single digit growth.
Taking these incremental sales into account, the company’s revenues would be still lower compared with the pre-Ron Johnson era. J. C. Penney’s sales went into a freefall after Johnson’s, the then CEO, ambitious transformation plan back fired. After reinstating Myron E. (Mike) Ullman, III in April 2013, the company has embarked on a turnaround mission. Though the company has somewhat succeeded in pulling itself out of murky waters, we believe it still has a long way to go.
At present, J. C. Penney has a Zacks Rank # 2 (Buy) stock. Some better ranked retail stocks worth consideration include Citi Trends, Inc. (CTRN) and Hanesbrands Inc. (HBI). Both sport a Zacks Rank #1 (Strong Buy)
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