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J. C. Penney Marches Ahead of the Industry: Here's Why

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Shares of J. C. Penney, Inc. (JCP - Free Report) have surged 59.2% in the past three months, outperforming the industry’s growth of 6.2%. The Zacks Rank #3 (Hold) stock is likely to have gained on narrower-than-expected loss in third-quarter fiscal 2019 as well as strategic endeavors undertaken.

Moving on, the company’s turnaround efforts — including the early implementation of Plan for Renewal that aims at driving traffic, enhancing customer shopping experience and offering compelling merchandise — started to gain traction.

These apart, CEO Soltau’s other endeavors — including the partnership with largest fashion resale marketplace thredUP, significant changes in leadership, optimization of inventory levels and closing of underperforming stores — are contributing to the revival process.

 

A Brief Introspection

J. C. Penney is progressing well with its growth efforts. In this regard, the company recently launched a brand-defining store in Hurst, TX, which will serve as a lab for extensive consumer research. Moreover, it collaborated with the Hallmark channel as part of its preparation for the holiday season sale.

Further, in a bid to lure customers, it is testing a new store format, which includes yoga studio, videogame lounge and lifestyle workshops. Additionally, the company is on track to add key national brands to boost the top line.

Moreover, J. C. Penney launched an in-house brand — St. John’s Bay Outdoor — within the men’s department in its stores. Alongside this, the company opened an Outdoor Shop, featuring St. John’s Bay Outdoor along with three new product lines namely American Threads, The American Outdoorsman and HI-TEC.

Management noted that consumers have been responding positively to the initiative. Prior to this, the company teamed up with thredUP to offer second-hand women’s clothing and handbags. Through such a move, management expects to cash in on the increasing demand for high-quality second-hand products, provided at lower prices.

These apart, strength in Women’s and Men’s apparel as well as fine jewelry and footwear businesses bode well. Furthermore, the company integrated Fit Bit in its assortments of health and wellness products. It is also taking initiatives to boost sales, with special size offerings. Also, the company launched Fanatics shops, which are designed to attract sports fans to purchase the newest and popular team apparel, inside its local JCPenney stores.

Hurdles

J. C. Penney has been witnessing dwindling sales for quite some time now, as evident from weak third-quarter results. We note that sales missed the consensus mark for the third consecutive quarter. Sluggishness in comps might have hurt the top line to some extent. Also, the top line was hurt by aggressive promotions to reduce slow-moving and aged inventory. The headwinds are expected to persist in the fourth quarter as well.

The company’s comps declined 9.3% year over year due to its exit from the major appliance and in-store furniture categories. This impacted comps to the tune of 270 basis points. These exits were carried out as part of its turnaround initiatives to focus on profitable areas. Management continues to expect comps decline of 7-8% for fiscal 2019. Excluding the impact of the company’s exit from the major appliance and in-store furniture categories, comps are still anticipated to decline 5-6%.

Stocks to Consider

Boot Barn Holdings (BOOT - Free Report) has a long-term earnings growth rate of 15%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez (ZUMZ - Free Report) has a long-term earnings growth rate of 12%. It presently sports a Zacks Rank #1.

DICK’S Sporting Goods (DKS - Free Report) has a long-term earnings growth rate of 6%. It currently carries a Zacks Rank #1.

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