It has been about a month since the last earnings report for J.C. Penney Company, Inc. . Shares have lost about 7.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JC Penney Q1 Earnings Beat, Revenues Continue to Disappoint
J. C. Penney posted adjusted earnings of $0.06 against the Zacks Consensus Estimate of a loss of $0.22. In the prior-year quarter, the company had reported adjusted loss of $0.32. However, on a GAAP basis, the company delivered net loss of $180 million or $0.58, wider than the net loss of $68 million or $0.22 reported in the year-ago quarter. The company not only reported widening net loss but also dismal comparable sales and revenues.
The company’s total net sales of $2,706 million missed the Zacks Consensus Estimate of $2,758 million and declined 3.7% year over year, after witnessing a decrease of 0.9% in the preceding quarter. Further, weakness in apparel continues to affect the company’s overall sales. Notably, J. C. Penney’s sales have missed the estimate for the fifth consecutive quarter. Comparable-store sales (comps) decreased 3.5%, compared with a decline of 0.4% in the prior-year quarter.
The company’s results were negatively impacted by dismal sales at brick-and-mortar stores during February and increase in costs due to store closures as well as employee severance packages.
Sturdy performance was witnessed across Sephora, Home, Salon and Fine Jewelry divisions. Management remains optimistic about roll out of appliances, new Sephora locations, center core refreshes, in-store.com fulfillment and buy online, pick up in store same day initiative.
Gross profit in the quarter decreased 3.4% to $983 million, while gross margin expanded 10 basis points (bps) to 36.3%. J. C. Penney’s adjusted EBITDA improved to $255 million from $153 million in the prior-year quarter, while adjusted EBITDA margin increased 400 bps to 9.4%.
Strategic Initiatives
In an effort, to achieve sustainable growth J. C. Penney had earlier announced strategic initiatives, wherein it shut down 138 stores and is further planning to close two distribution centers. These strategic efforts will not only help the company to align its brick-and-mortar presence but will also help it utilize capital resources in locations where it has ample opportunity.
The closure of stores, which represents nearly 13–14% of the company’s store portfolio, is likely to hurt total annual sales by 5%. Further, EBITDA will come down by less than 2% but most importantly it will not affect net income.
These stores were not only reporting dismal comps in comparison with the remaining store base but were also being operated at higher cost. The company anticipates annual saving of nearly $200 million from the store closure program.
Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $363 million, long-term debt of $4,066 million and shareholders’ equity of $1,205 million. Merchandise inventory levels increased 0.8% to $2,949 million.
Moreover, in the reported quarter, the company used $293 million of free cash flow compared with $421 million used in the prior-year quarter. Further, it incurred capital expenditures of $83 million in the quarter, up from $39 million in the year-ago quarter.
2017 Guidance
Management reiterated fiscal 2017 guidance. The company expects comps to be in the range of down 1% to up 1%, while gross margin is projected to expand between 20 bps and 40 bps compared with fiscal 2016. Adjusted earnings per share are estimated to be in the range of $0.40–$0.65.
Moreover, the company expects to generate free cash flow between $300 million and $400 million in fiscal 2017. Inventory is projected to decline by 5% or above in comparison with fiscal 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 169.2% due to these changes.
J.C. Penney Company, Inc. Price and Consensus
VGM Scores
At this time, J.C. Penney's stock has a subpar Growth Score of 'D'. It lags on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our style scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Why Is J.C. Penney (JCP) Down 7.9% Since the Last Earnings Report?
It has been about a month since the last earnings report for J.C. Penney Company, Inc. . Shares have lost about 7.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
JC Penney Q1 Earnings Beat, Revenues Continue to Disappoint
J. C. Penney posted adjusted earnings of $0.06 against the Zacks Consensus Estimate of a loss of $0.22. In the prior-year quarter, the company had reported adjusted loss of $0.32. However, on a GAAP basis, the company delivered net loss of $180 million or $0.58, wider than the net loss of $68 million or $0.22 reported in the year-ago quarter. The company not only reported widening net loss but also dismal comparable sales and revenues.
The company’s total net sales of $2,706 million missed the Zacks Consensus Estimate of $2,758 million and declined 3.7% year over year, after witnessing a decrease of 0.9% in the preceding quarter. Further, weakness in apparel continues to affect the company’s overall sales. Notably, J. C. Penney’s sales have missed the estimate for the fifth consecutive quarter. Comparable-store sales (comps) decreased 3.5%, compared with a decline of 0.4% in the prior-year quarter.
The company’s results were negatively impacted by dismal sales at brick-and-mortar stores during February and increase in costs due to store closures as well as employee severance packages.
Sturdy performance was witnessed across Sephora, Home, Salon and Fine Jewelry divisions. Management remains optimistic about roll out of appliances, new Sephora locations, center core refreshes, in-store.com fulfillment and buy online, pick up in store same day initiative.
Gross profit in the quarter decreased 3.4% to $983 million, while gross margin expanded 10 basis points (bps) to 36.3%. J. C. Penney’s adjusted EBITDA improved to $255 million from $153 million in the prior-year quarter, while adjusted EBITDA margin increased 400 bps to 9.4%.
Strategic Initiatives
In an effort, to achieve sustainable growth J. C. Penney had earlier announced strategic initiatives, wherein it shut down 138 stores and is further planning to close two distribution centers. These strategic efforts will not only help the company to align its brick-and-mortar presence but will also help it utilize capital resources in locations where it has ample opportunity.
The closure of stores, which represents nearly 13–14% of the company’s store portfolio, is likely to hurt total annual sales by 5%. Further, EBITDA will come down by less than 2% but most importantly it will not affect net income.
These stores were not only reporting dismal comps in comparison with the remaining store base but were also being operated at higher cost. The company anticipates annual saving of nearly $200 million from the store closure program.
Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $363 million, long-term debt of $4,066 million and shareholders’ equity of $1,205 million. Merchandise inventory levels increased 0.8% to $2,949 million.
Moreover, in the reported quarter, the company used $293 million of free cash flow compared with $421 million used in the prior-year quarter. Further, it incurred capital expenditures of $83 million in the quarter, up from $39 million in the year-ago quarter.
2017 Guidance
Management reiterated fiscal 2017 guidance. The company expects comps to be in the range of down 1% to up 1%, while gross margin is projected to expand between 20 bps and 40 bps compared with fiscal 2016. Adjusted earnings per share are estimated to be in the range of $0.40–$0.65.
Moreover, the company expects to generate free cash flow between $300 million and $400 million in fiscal 2017. Inventory is projected to decline by 5% or above in comparison with fiscal 2016.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 169.2% due to these changes.
J.C. Penney Company, Inc. Price and Consensus
J.C. Penney Company, Inc. Price and Consensus | J.C. Penney Company, Inc. Quote
VGM Scores
At this time, J.C. Penney's stock has a subpar Growth Score of 'D'. It lags on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value investors based on our style scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.