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JC Penney Up 18% Since Q3 Earnings, Can It Gain Further?
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More than 10 days have passed since J. C. Penney Company, Inc. came up with third-quarter fiscal 2017 results and the stock is still rallying. However, the question lingering in the investors mind is whether it can sustain the rally. Let’s delve deeper.
Hidden Catalyst
The company’s shares have tanked 66.5% in a year, wider than the industry’s slump of 42.3%. However, it took a sharp U-turn and rallied 15.3% on Nov 10. This upside can be attributed to the company third-quarter fiscal 2017 results which impressed investors. Ever since, the company has reported third-quarter results, shares have gained nearly 18%.
The company’s bottom-line came in above the Zacks Consensus Estimate after missing it in the preceding quarter. Meanwhile, the top line surpassed the estimate for the second straight quarter. However, the big take away from this quarter was rise in comparable-store sales (comps) that marked the best quarterly comps since fiscal 2016. Further, sequentially comps increased 300 basis points (bps). In the reported quarter, appliances sales increased more than double. During the quarter, home, Sephora, footwear and handbags plus salon were the best performing divisions that outweighed the company’s total comps.
The in-store Sephora departments continue to outperform by drawing more customers. During fiscal 2016, the company opened 61 Sephora stores. In third-quarter fiscal 2017, it opened 38 Sephora stores, bringing the total count to 70 so far in fiscal 2017. At the end of the reported quarter, the total count of Sephora locations inside J. C. Penney was 642 stores. Sephora is doing exceptionally well and is one of the best performing categories.
The Zacks Rank #3 (Hold) company has taken up several strategic initiatives to drive traffic. The company, in order to enhance customer shopping experience, has been focusing on remodeling, renovating and refurbishing stores with special focus on enhancing high-margin center core department that houses handbags, fashion accessories, sunglasses and fashion jewelry. Earlier, the company announced a fresher and better J. C. Penney Rewards program. In an effort to lure more customers and ramp up sales performance, it has enhanced the loyalty program, introduced for the first time in 2008. Per the new reward program, every customer will get a reward of $10 for every 200 points earned.
Hurdles to Cross
J. C. Penney continues to struggle with high-debt levels. At the end of the reported quarter, total long-term debt was $4,039 million, reflecting a debt-to-capitalization ratio of 78.9%. Earlier, the company had announced plans to lower the net debt to EBITDA ratio to less than three times by fiscal 2017.
Further, comps and earnings projections for fiscal 2017 are disappointing. For fiscal 2017, the comps are projected to be in the range of down 1% to flat compared with the previous estimate of down 1% to up 1%. Cost of goods sold is now forecast to increase by 100-120 bps year over year. The company expects adjusted earnings per share to be in the range of 2-8 cents, sharply below its initial estimate of 40-65 cents.
American Eagle Outfitters delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 8.7%.
Boot Barn Holdings has an impressive long-term earnings growth rate of 15.7%.
Children's Place delivered an average beat of 14% in the last four quarters.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
JC Penney Up 18% Since Q3 Earnings, Can It Gain Further?
More than 10 days have passed since J. C. Penney Company, Inc. came up with third-quarter fiscal 2017 results and the stock is still rallying. However, the question lingering in the investors mind is whether it can sustain the rally. Let’s delve deeper.
Hidden Catalyst
The company’s shares have tanked 66.5% in a year, wider than the industry’s slump of 42.3%. However, it took a sharp U-turn and rallied 15.3% on Nov 10. This upside can be attributed to the company third-quarter fiscal 2017 results which impressed investors. Ever since, the company has reported third-quarter results, shares have gained nearly 18%.
The company’s bottom-line came in above the Zacks Consensus Estimate after missing it in the preceding quarter. Meanwhile, the top line surpassed the estimate for the second straight quarter. However, the big take away from this quarter was rise in comparable-store sales (comps) that marked the best quarterly comps since fiscal 2016. Further, sequentially comps increased 300 basis points (bps). In the reported quarter, appliances sales increased more than double. During the quarter, home, Sephora, footwear and handbags plus salon were the best performing divisions that outweighed the company’s total comps.
The in-store Sephora departments continue to outperform by drawing more customers. During fiscal 2016, the company opened 61 Sephora stores. In third-quarter fiscal 2017, it opened 38 Sephora stores, bringing the total count to 70 so far in fiscal 2017. At the end of the reported quarter, the total count of Sephora locations inside J. C. Penney was 642 stores. Sephora is doing exceptionally well and is one of the best performing categories.
The Zacks Rank #3 (Hold) company has taken up several strategic initiatives to drive traffic. The company, in order to enhance customer shopping experience, has been focusing on remodeling, renovating and refurbishing stores with special focus on enhancing high-margin center core department that houses handbags, fashion accessories, sunglasses and fashion jewelry. Earlier, the company announced a fresher and better J. C. Penney Rewards program. In an effort to lure more customers and ramp up sales performance, it has enhanced the loyalty program, introduced for the first time in 2008. Per the new reward program, every customer will get a reward of $10 for every 200 points earned.
Hurdles to Cross
J. C. Penney continues to struggle with high-debt levels. At the end of the reported quarter, total long-term debt was $4,039 million, reflecting a debt-to-capitalization ratio of 78.9%. Earlier, the company had announced plans to lower the net debt to EBITDA ratio to less than three times by fiscal 2017.
Further, comps and earnings projections for fiscal 2017 are disappointing. For fiscal 2017, the comps are projected to be in the range of down 1% to flat compared with the previous estimate of down 1% to up 1%. Cost of goods sold is now forecast to increase by 100-120 bps year over year. The company expects adjusted earnings per share to be in the range of 2-8 cents, sharply below its initial estimate of 40-65 cents.
3 Retail Stocks Likely to Steal the Show
Some better-ranked stocks worth considering from the retail space are American Eagle Outfitters, Inc. (AEO - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and The Children's Place, Inc. (PLCE - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Eagle Outfitters delivered an average positive earnings surprise of 3.9% in the trailing four quarters and has a long-term earnings growth rate of 8.7%.
Boot Barn Holdings has an impressive long-term earnings growth rate of 15.7%.
Children's Place delivered an average beat of 14% in the last four quarters.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>