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JC Penney Gains on Positive Sales Outlook

M JCP TGT KSS

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Shares of J. C. Penney Company, Inc. (JCP - Analyst Report) gathered momentum and surged 8.8% to close at $7.39 yesterday, after CEO Myron Ullman hinted at improving sales trends and reiterated positive comparable-store sales forecast for the third quarter of fiscal 2013, Associated Press reported.

Earlier, J. C. Penney had revealed that its key sales barometer improved in September from the prior month and is expected to last through the remainder of 2013, owing to its turnaround efforts. The Plano, Texas-based retailer had announced that its sales for the month of Sep 2013 dipped 4% year over year but improved sequentially from a decline of 9.8% registered in Aug 2013.

J. C. Penney has been in troubled waters for quite some time, and has been grappling with waning revenues and higher losses. The company has not shown any signs of recovery in the recent past. This is evident from its 7th consecutive quarter of sluggish results on Aug 20. The company has been constantly lagging its peers, Macy’s Inc. (M - Analyst Report), Target Corporation (TGT - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report) in terms of performance.

However, the company has taken several strategic initiatives to drive traffic and conversion. The company reverted to promotions, which could be a successful sales driver this holiday season.

Investors remain cautious about the stock, as the company endeavors to recoup and give itself a major facelift. In a significant development, the company’s board of directors in Apr 2013 discharged the Chief Executive Officer (CEO) Ron Johnson of his duties after 17 months, as his ambitious transformational ideas failed to materialize. Consequently, the company’s former CEO, Myron Ullman was reinstated in his post.

The company will come out with its third quarter results on Nov 19. However, our proven model does not conclusively show that J. C. Penney is likely to beat earnings this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1, #2 or #3 to beat the estimate — but this is not the case here. Although the stock carries a Zacks Rank #3 (Hold), but has a negative ESP of 12.12% (as the Most Accurate estimate stands at a loss of $1.85, while the Zacks Consensus Estimate is pegged at a loss of $1.65).

The above view is well supported by J. C. Penney’s earnings surprise history. Looking at the company’s earnings surprise history, it has missed the Zacks Consensus Estimate by an average of about 523.2% in the trailing four quarters.

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