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Shares Up as JC Penney Loss Narrows

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Shares of J. C. Penney Company Inc (JCP - Free Report) rallied nearly 6% on the index after the company posted narrower-than-expected fourth quarter fiscal 2013 loss followed by an upbeat outlook for fiscal 2014. The company reported adjusted loss of 68 cents that fared far better than the Zacks Consensus Estimate of a loss of 79 cents and a loss of $1.95 reported in the prior year quarter.

Including one-time items, quarterly earnings came in at 11 cents per share, compared with a loss of $2.51 per share in the year-ago quarter.

For full-year fiscal 2013, adjusted loss was $5.74 per share, which widened from the prior-year quarter loss of $3.49 but narrowed from the Zacks Consensus Estimate of a loss of $6.04 per share. Including one-time items, yearly loss per share came in at $5.57, which was wider than last year’s reported loss of $4.49.

It seems that J.C. Penney’s endeavors to give itself a facelift have paid off as the company posted narrower-than-expected losses and positive comparable-store sales (comps). According to the CEO, J.C. Penney is now aiming to “go forward”, which the third stage of its turnaround, after having completed “immediate stabilization” and “rebuilding” in the last 10 months.

The company has taken several strategic initiatives at the managerial, marketing and merchandising levels to reinstate itself on growth trajectory and compete better with its peers like Macy’s Inc. (M - Free Report) , Target Corp. (TGT - Free Report) and Kohl’s Corp. (KSS - Free Report) .

The quarterly sales dipped 2.6% year over year to $3,782 million and also fell short of the Zacks Consensus Estimate of $3,866 million. For the full year, sales declined 8.7% year over year to $11,859, and lagged the Zacks Consensus Estimate of 11,930 million.

However, comps increased 2% year over year and depicted a sequential improvement of 680 basis points (bps). For the holiday period, (November and December), sales grew 3.1% year over year. Online sales through (excluding the 53rd week) rose 26.3% to $381 million from the prior-year quarter.

Men's apparel, Home and Women's accessories were the best performing categories. Performance of Sephora stores was also commendable. During the year, J. C. Penney opened 60 Sephora outlets, bringing the store count to 446.

Gross profit plummeted 16.2% to $1,074 million. Gross profit margin expanded 460 bps to 28.4%, in spite of unfavorable impact from discontinuation of some brands and related inventory clearance, along with higher clearance markdowns.

J. C. Penney’s adjusted operating loss significantly narrowed during the quarter and came in at $109 million compared with an adjusted loss of $540 million in the year-ago quarter.

Other Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $1,515 million, long-term debt of $4,839 million and shareholders’ equity of $3,087 million. Moreover, the company generated free cash flow of $246 million in the said quarter. The company incurred capital expenditures of $951 million in fiscal 2013.   


For first-quarter fiscal 2014, J. C. Penney anticipates comps to increase 3%–5% year over year. Additionally, there is a projection that gross margin will improve while selling, general and administrative (SG&A) expenses will decrease, both on a year-over-year basis.

For fiscal 2014, management now expects comps to increase in mid single digits while gross margin is forecasted to considerably improve from the prior-year quarter. Capital expenditure is expected to be $250 million for the year. The company also anticipates liquidity of over $2 billion at the end of the year.

Currently, J.C. Penney carries a Zacks Rank #4 (Sell).

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