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J.C. Penney Q2 Loss Narrows Y/Y on Turnaround Strategies - Analyst Blog

J. C. Penney Company Inc. 's ( JCP ) turnaround strategies seem to have paid off yet again, as the company's second-quarter fiscal 2014 adjusted loss of 75 cents a share not only narrowed substantially from a loss of $2.16 last year, but also fared better than the Zacks Consensus Estimate of a loss of 98 cents.

Including one-time items, quarterly loss came in at 56 cents per share, compared with a loss of $2.66 per share in the year-ago period.

J C Penney Company, Inc - Earnings Surprise | FindTheBest

Along with J. C. Penney, some other big retailers provided the quarterly update on the same day. Wal-Mart Stores Inc. ( WMT ) posted second-quarter 2015 adjusted earnings from continuing operations of $1.21 per share, which came in line with the Zacks Consensus Estimate. Top line of $119.3 billion fell short of the Zacks Consensus Estimate of $120.1 billion.

Nordstrom Inc. ( JWN ) also posted better-than-expected second-quarter fiscal 2014 results on the same day. Its quarterly earnings of 95 cents per share came a penny ahead of the Zacks Consensus Estimate and were a couple of cents higher than the comparable prior-year quarter. Nordstrom's total revenue of $3,392 million registered about 6.1% year-over-year growth and surpassed the Zacks Consensus Estimate of $3,384 million.

However, a day before J.C. Penney, Macy's Inc. ( M ) posted second-quarter fiscal 2014 earnings of 80 cents a share, which missed the Zacks Consensus Estimate of 86 cents. Also, revenues of $6,267 million fell short of the Zacks Consensus Estimate of $6,294 million.

Coming back to J. C. Penney, quarterly sales grew 5.1% year over year to $2,799 million surpassing the Zacks Consensus Estimate of $2,786 million.

Also, comparable store sales (comps) increased 6% year over year. Online sales through jcp.com advanced 16.7% to $249 million.

Men's and Women's apparel, Home and Fine Jewelry were the best performing categories. Performance of Sephora stores was also commendable. Regionally, sales improved overall, especially in the western and southern regions of the country. During the quarter, J. C. Penney opened 13 and expanded eight existing Sephora outlets.

However, the company's shares have dipped 2.5% since the earnings release, as investors remained skeptical owing to the conservative gross margin outlook.

Gross profit surged 28.1% to $1,008 million, with the margin expanding 640 bps to 36%, benefiting from improved clearance sales. Going forward, in the third quarter, gross margin is projected to remain in line with the second quarter.

Further, the company's selling, general and administrative (SG&A) expenses fell nearly 6% to $964 million. As a percentage of sales, SG&A improved 410 bps to 34.4%, backed by higher credit income, lower net advertising and corporate over head and a fall in store costs.

J. C. Penney's adjusted operating loss significantly narrowed during the quarter and came in at $70 million compared with an adjusted loss of $395 million in the year-ago period.

Other Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $1,036 million, long-term debt of $5,323 million and shareholders' equity of $2,600 million.

Moreover, the company generated free cash flow of $76 million in the said quarter, marking a remarkable progress from a negative free cash flow of $1,146 million recorded last year. The improvement was attributable to tough inventory management and increased profitability of the company. The company incurred capital expenditures of $61 million in the quarter.

Guidance

For third-quarter fiscal 2014, J. C. Penney anticipates comps to increase in the mid-single digits, while selling, general and administrative (SG&A) expenses are expected to climb marginally, on a year-over-year basis.

For fiscal 2014, management continues to expect comps to increase in the mid single digits while gross margin is projected to improve considerably from the prior-year quarter. Capital expenditure is still expected to be $250 million for the year. The company also anticipates liquidity of roughly $2.1 billion at the end of the year while free cash flow would be positive.

Management of this Zacks Rank #2 (Buy) company remains confident of driving further profitability on the back of its robust private and national brands, its consumer-friendly prices and its unique collection. Also, with its turnaround strategy underway, the company aims to see itself as a leading department store retailer.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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