The economy is struggling, and so is J. C. Penney Company Inc. (JCP">JCP). The company’s lackluster performance has set it back while many of its peers have walked away with impressive numbers. But is this enough for an investment decision?
Superficially, a stock may look weak but this should not be the criterion for ones judgment. What looks good from the outside may not actually hold promises in the long run. In short, looks can be deceptive.
What else do we look for before investing in a stock? For a comprehensive answer, we must dig deeper to find whether the company is actually trying to address its problems, and what measures or remedies it is taking to lift itself. The steps may not immediately lead the company on a growth path immediately, but slow and steady wins the race.
Rising stocks are always lucrative for investors. In a growing economy, everything appears to be on the rise, and vice versa. But that is where an investor must act prudently. Instead of being influenced by market sentiments, one must carefully analyze one's portfolio of stocks.
A close look will give a brief idea of whether the risks in a stock are systematic or unsystematic. A dismal economy will definitely make the stock look less attractive, but that doesn't necessarily indicate that the stock is devoid of growth propositions.
A SWOT analysis of the stock will certainly make our task much simpler. A diligent use of the tool will help in assessing and scrutinizing equity investments. Every stock has its own strengths and weaknesses that need to be evaluated. And it is also true that every opportunity carries a risk factor. Our approach through this write up is to analyze J. C. Penney on this platform.
Let’s start with…..
Counting the 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 over 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 customers’ shopping experience, J. C. Penney is also focusing on remodeling, renovating and refurbishing stores as well as refreshing its website functionality, considering the steady migration to online shopping. The launch of compelling new merchandise and the JCP Rewards program should also bode well.
The in-store Sephora departments continue to draw younger and more affluent customers. J. C. Penney has also incorporated stores of MNG by Mango and Call It Spring by The ALDO Group in its store suite.
Where Lies the Weakness?
J. C. Penney 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.
J. C. Penney also could not make the most of the Black Friday weekend sales, when retailers such as Macy’s Inc. (M - Analyst Report), Saks Incorporated (SKS">SKS), Ross Stores Inc. (ROST">ROST) and Limited Brands Inc. posted better-than-expected November comparable-store sales growth of 4.8%, 9.3%, 5% and 7%, respectively.
An economy plagued by financial crisis and high unemployment remains a bitter truth but relentless efforts to emerge from the doldrums cannot be ignored. Even J. C. Penney is trying every means to tide over a distressed economy.
Its latest move of acquiring a 16.6% stake in Martha Stewart Living Omnimedia Inc. (MSO">MSO) is just an another step towards uplifting itself. The company is betting hard on Martha Stewart to be a fortune changer. The alliance between the two took place on December 7.
In October, J. C. Penney entered into an asset buyout agreement with Liz Claiborne Inc. . 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.
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 eventually be at the helm. J. C. Penney, which does not remain immune to economic upheavals, is no exception. The company has been losing its foothold in the market as it struggles against retail chains such as Macy’s and Kohl’s Corporation (KSS">KSS).
Given the pros and cons embedded in J. C. Penney, it might be difficult for an investor to decide whether to Buy, Hold or Sell the company’s stock. That’s where we come in with the Zacks Rank. Currently, J. C. Penney holds a Zacks #3 Rank that translates into a short-term Hold rating.