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J. C. Penney (JCP) Q3 Loss Lower than Expected, Sales Lag

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J. C. Penney Company Inc. (JCP - Free Report) reported adjusted loss per share of 21 cents in the third quarter of fiscal 2016, narrower than the Zacks Consensus Estimate of a loss of 22 cents. In the year-ago quarter, the company’s adjusted loss was 46 cents a share. Including one-time items, J. C. Penney reported quarterly loss of 22 cents a share, lower than a loss of 38 cents in the year-ago quarter.

The company’s total net sales of $2,857 million missed the Zacks Consensus Estimate of $2,944 million and declined 1.4% year over year, after witnessing an increase of 1.5% in the preceding quarter. Weakness in apparel affected the company’s overall sales. Notably, the company’s sales missed estimates for the third consecutive quarter. Comparable-store sales (comps) decreased 0.8%, after increasing 0.4% in the preceding quarter and 6.4% in the year-ago period.

Sturdy performance was witnessed across Sephora, Home, Salon and Fine Jewelry divisions. Management remains optimistic about its roll out of appliances, new Sephora locations, center core refreshes, in-store .com fulfillment and buy online, pick up in store same day initiative. The company anticipates realizing the full impact of these initiatives in the fourth quarter of fiscal 2016.

Gross profit in the quarter decreased 1.8% to $1,062 million, while gross margin contracted 10 basis points (bps) to 37.2%. J. C. Penney’s adjusted EBITDA improved to $174 million from $111 million in the prior-year quarter, whereas adjusted EBITDA margin increased 230 bps to 6.1%.

PENNEY (JC) INC Price, Consensus and EPS Surprise

PENNEY (JC) INC Price, Consensus and EPS Surprise | PENNEY (JC) INC Quote

Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $183 million, long-term debt of $4,509 million and shareholders’ equity of $1,140 million. Merchandise inventory levels decreased 0.6% to $3,691 million.

Moreover, in the reported quarter the company reported negative free cash flow of $315 million. In the year-ago quarter, the company had reported negative free cash flow of $324 million. Further, the company incurred capital expenditures of $211 million in the quarter, up from $93 million in the year-ago quarter.

Guidance

Following, dismal sales in the third quarter, the company lowered its comps guidance for fiscal 2016. Management now expects comps growth in the range if 1–2%, down from the previous guidance of an increase of 3–4%. The company anticipates gross margin to be flat year over year, down from the prior guidance of an increase in the range of 10–30 bps. Adjusted earnings per share are likely to be positive in fiscal 2016. EBITDA is expected at around $1 billion.

The company expects fourth-quarter comps to be in the range of nearly 2–5%.

Zacks Rank

At present, J. C. Penney carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Boot Barn Holdings, Inc. (BOOT - Free Report) , Foot Locker, Inc. (FL - Free Report) and The Gap, Inc. (GPS - Free Report) all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Boot Barn Holdings whose shares have increased more than 37% in the past three months, currently has a long-term earnings growth rate of 14.5%.

Foot Locker shares have surged nearly 17% in the past three months.

The Gap has long-term earnings growth rate of 9.4% and further the company’s shares have gained more than 16% in the past three months.

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