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J.C. Penney Drops 21% in 3 Months: What's Pulling it Down?

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J. C. Penney Company, Inc. (JCP - Free Report) is persistently grappling with high debt, unsuccessful leadership and dismal second-quarter results. This is quite evident from the company’s price performance in the past three months. Shares of this department store operator have slumped 20.8%, underperforming the industry’s decline of 5.5% and S&P 500’s growth of 6.8%.

Dismal Q2 Performance Hurt Investors

The stock’s bearish run on the bourses can be attributed to the company’s dismal show in second-quarter fiscal 2018. The company’s top line not only missed the Zacks Consensus Estimate but also decreased year over year, while net loss widened and also fared unfavorably with the consensus mark. A contraction in gross margin also add to the woes. All these compelled management to slash its fiscal 2018 view. (Read: JC Penney Q2 Loss Wider Than Expected, FY18 View Drab)

J. C. Penney now expects adjusted loss to range from 80 cents to $1.00 per share. The company had earlier projected a loss of 7 cents to earnings of 13 cents.

Estimates Going Downhill

No wonder, analysts have been tweaking their estimates to align with the company’s dismal projection. As a result, the Zacks Consensus Estimate has been witnessing a downtrend over the past 60 days. This, in turn, clearly indicates that analysts covering the stock are pessimistic about its future performance.

For third-quarter fiscal 2018, the consensus mark widened from a loss of 19 cents to 55 cents, while for the fiscal fourth quarter the same decreased 15 cents to earnings of 33 cents. For fiscal 2018, estimates widened to a loss of 71 cents from earnings of 2 cents in two months.

Other Challenges

This Zacks Rank #5 (Strong Sell) company has been navigating through rough waters for a while now, losing customers to cheap sellers. Nonetheless, it has been making turnaround efforts to revive its lost sheen but none seems productive. Earlier, the company changed its logo, store designs, advertisements and pricing model in a bid to attract consumers. However, these strategies failed to deliver desired results.

To add to the troubles, the company has been struggling with shrinking gross margin, which is likely to remain under pressure in the third quarter. Going ahead, management plans to lower enterprise inventory by at least $250 million by the end of fiscal 2019, which may dent gross margins for the next few quarters. We note that cost of goods sold, as a percentage of total net sales, is anticipated to increase year over year backed by management’s efforts to right size inventory levels.

Wrapping Up

Nevertheless, J. C. Penney has been making strategic efforts to transform from a brick-and-mortar retailer to an omni-channel company. In order to improve customer shopping experience, the company has been focusing on remodeling, renovating and refurbishing its stores. Also, it has introduced a new value proposition, "Get Your Penney`s Worth”, under which selected items of private brands are available for just a penny.

In spite of the aforementioned endeavors, we suggest you to maintain a safe distance from the stock until these efforts start yielding. Meanwhile, investors may consider the following stocks from the same sector.

Looking for More Promising Retail Stocks? Check These

Zumiez (ZUMZ - Free Report) delivered an average positive earnings surprise of 9.6% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings (BOOT - Free Report) came up with an average positive earnings surprise of 31.8% in the trailing four quarters. The company has a long-term earnings growth rate of 23% and a Zacks Rank of 1.

Urban Outfitters (URBN - Free Report) pulled off an average positive earnings surprise of 17.7% in the trailing four quarters. The company has a long-term earnings growth rate of 12% and a Zacks Rank #1.

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