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J. C. Penney Company Inc. (JCP - Analyst Report) seems to be in an unfavorable position as the soft economic environment continues to take toll on its performance. This retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishing, reported the fourth consecutive quarter of lower-than-expected bottom-line results.
The company’s dismal performance for the fourth straight quarter compelled us to retain our bearish stance on the stock. Thus, we maintain our Underperform recommendation on the stock with a price target of $26.00.
Falling Short of Zacks Expectation
We observe that despite a well-diversified supplier base, J. C. Penney has been struggling against other retail chains. The company’s earnings lagged the Zacks Consensus Estimates in the last four quarters by an average of 328.2%.
J. C. Penney’s third-quarter fiscal 2012 results failed to meet expectations. The company posted a quarterly loss of 93 cents a share that fared worse than the earnings of 18 cents in the year-ago quarter and the Zacks Consensus Estimate of a loss of 8 cents.
The quarterly sales of $2,927 million plunged 26.6% from the prior-year quarter, and fell short of the Zacks Consensus Estimate of $3,290 million. Internet sales via jcp.com plummeted 37.3% to $214 million in the quarter. The company’s quarterly sales have been missing the Zacks’ expectation since the last five quarters by an average of 5.3%.
Comparable-store sales declined 26.1% during the quarter compared with a decrease of 1.6% in the prior-year period. We believe that the company needs to be more vocal regarding its pricing mechanism and better align its marketing efforts to attract buyers. Traffic declined 11% in the first quarter, and 12% in both the second and third quarters.
Downward Trend in Estimate Revision
Following J. C. Penney’s disappointing third quarter results, the Zacks Consensus Estimates have been portraying a downward trend.
The Zacks Consensus Estimate for the fourth quarter of fiscal 2012 dropped by 51 cents to 17 cents a share. For the first quarter of fiscal 2013, the estimate slid to a loss of 25 cents from a loss of 6 cents over the same time frame. The Zacks Consensus Estimates dipped to a loss of $1.08 from a loss of 19 cents for fiscal 2012 and plunged by 94 cents to 40 cents a share for fiscal 2013 in the last 30 days.
J. C. Penney Trying to Reposition
J. C. Penney is in a transitory phase, trying to remould itself from the way it had operated before Ron Johnson took charge, and is striving to become America’s favorite store. In order to uplift itself, J. C. Penney announced an array of measures, which include a new pricing strategy, fresh logo, strategic merchandise initiatives, cost reduction and enhancement of customers’ shopping experience. The company intends to enable WiFi network and mobile POS in all the stores. The company aims to reduce costs by over $900 million by the end of fiscal 2012.
We believe that soft results for fourth quarters in a row have dashed hopes at least for the near term. Moreover, an erratic consumer behavior and a sluggish economic recovery still remain matters of concern.
The above analysis supports our unbiased view, and advocates our bearish stand on the stock, which is well defined through our Zacks #5 Rank that translates into a short-term Strong Sell rating. J. C. Penney, which competes with Macy’s Inc. (M - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report), currently operates approximately 1,100 department stores in the United States and Puerto Rico.