Not a Great Year for J.C. Penney - Analyst Blog

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An economy plagued by financial crisis and high unemployment remains a bitter truth, but relentless efforts to emerge from these doldrums cannot be ignored. The ongoing turmoil has also touched J. C. Penney Company Inc. ( JCP ), which has seen its crests and troughs through the year despite trying every means to tide over a distressed economy.

Dismal Sales Numbers

J. C. Penney has been losing its foothold in the market as it struggles against retail chains such as Macy's Inc. ( M ) and Kohl's Corporation ( KSS ). It has been witnessing falling comparable-store sales since the last four months. Comps declined 1.9% in August, 0.6% in September, 2.6% in October and 2% in November.

Between January and November 2011, comparable-store sales fell as low as 2.6% (in October) and rose as high as 6.4% (in February and April) recording an average growth of a meager 0.8%. The last time J. C. Penney registered positive growth was in July, when comparable-store sales increased 3.3%. Since then, the company has seen a downtrend.

Monthly sales data has also not been encouraging for J. C. Penney, which has been falling persistently in the last four months - 4.5% in August, 3.6% in September, 6.6% in October and 5.9% in November. July was the last month when sales inched up 1%. J. C. Penney experienced a steep decline of 6.6% (in October) and recorded a highest increase of 3.4% (in April) in sales between January and November 2011.

Black Friday Sales Did Not Bring Cheers

The Black Friday weekend sales brought cheers for retailers such as Macy's, Saks Incorporated ( SKS ), Ross Stores Inc. ( ROST ) and Limited Brands Inc. ( LTD ) that went on to post better-than-expected November comparable-store sales growth of 4.8%, 9.3%, 5% and 7%, respectively. Early hours store openings, huge discounts, promotional activities and free shipping on online purchases were enough to woo customers on Black Friday that turned out to be a bonanza for both brick-and-mortar as well as e-commerce retailers.

But J. C. Penney could not make the most of this opportunity. It followed its old tradition of opening stores at 4 a.m. on Black Friday, when retailers such as Macy's Target Corporation ( TGT ), Best Buy Co. Inc. ( BBY ) dared to open their doors at the stroke of midnight. The decision hurt J. C. Penney's November comparable-store sales that were down 2% compared with an increase of 9.2% in the year-ago period.

JCP Has Some Long-Term Strength

Despite a persistent softness in the sales, we cannot shun the underlying strength. We believe 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 augur well in the long term. The company is leaving no stone unturned to become cost-resilient, and is focusing on closing underperforming stores and exiting its catalog business.

In order to enhance customer shopping experience, J. C. Penney is also focusing on remodeling, renovating and refurbishing of stores as well as refreshing its website functionality due to continued migration to online shopping. We believe that the launch of compelling new merchandise and the JCP Rewards program should bode well for J. C. Penney.

The in-store Sephora departments continue to draw younger and more affluent customers. The company opened 32 Sephora stores during the third quarter of 2011, bringing the total count to 308. J. C. Penney has also incorporated stores of MNG by Mango and Call It Spring by The ALDO Group in its store suite, and has expanded to 500 and 505 locations, respectively. The company counts upon these brands to breathe life into its sagging sales.

Can Acquisitions be a Game Changer?

The economy is struggling, and so is J. C. Penney. Its latest move of acquiring a 16.6% stake in Martha Stewart Living Omnimedia Inc. ( MSO ) is just another step towards uplifting itself. The company is betting hard on Martha Stewart for it to be a fortune changer. The alliance between them took place on December 7.

In October, J. C. Penney entered into an asset buyout agreement with Liz Claiborne Inc. ( LIZ ). Per the deal, J. C. Penney acquired the global rights for the Liz Claiborne portfolio of brands and the U.S. and Puerto Rico rights for Monet, a fashion jewelry brand for $267.5 million.

Will these acquisitions prove to be a game changer for J. C. Penney? We can only wait and watch how the retailer moves ahead - whether it walks the growth trajectory or continues to trail.

Let's Conclude

The economy still looks gloomy, and whether 2012 will mark the resurrection is tough to say, unless some concrete steps are taken to avoid another cliff fall. Cuts are deep and wounds are not healed. Each and every company is vying to survive the downturn, and trying every means to reach the helm. J. C. Penney, which does not remain immune to the economic upheavals, remains no exception.

Currently, we have a long-term Neutral recommendation on the stock. Moreover, J. C. Penney holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.

BEST BUY ( BBY ): Free Stock Analysis Report

PENNEY (JC) INC ( JCP ): Free Stock Analysis Report

KOHLS CORP ( KSS ): Free Stock Analysis Report

LIZ CLAIBORNE ( LIZ ): Free Stock Analysis Report

LIMITED BRANDS ( LTD ): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

MARTHA STWT LIV (MSO): Free Stock Analysis Report

ROSS STORES (ROST): Free Stock Analysis Report

SAKS INC (SKS): Free Stock Analysis Report

TARGET CORP (TGT): Free Stock Analysis Report

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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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