J.C. Penney Shares Plunge on Sales Miss: What Wall Street’s SayingNEW YORK (TheStreet) -- J.C. Penney shares tumbled roughly 10% on Thursday following third-quarter results that didnt impress investors. The Plano, Texas-based department store chain reported net sales that slipped from a year ago to $2.76 billion. Same-store sales were flat for the quarter, below J.C. Penneys guidance of low-single-digit growth. That said, the retailer was able to post a narrower net loss of 62 cents a share compared to a loss of $1.94 in the year-earlier period. J.C. Penneys gross margin also improved by 710 basis points to 36.6% of sales for the quarter from 29.5% in the same quarter last year. Must Read: 20 Stocks That Could Beat the Market in November: Priceline, U.S. Steel Lead Way For the full year, J.C. Penney now expects same-store sales to rise between 3.5% and 4.5% vs. the previous mid-single digit guidance. Gross margin is expected to rise between 500 and 600 basis points above last year, it said. Shares were down 9.9% to $6.99 on Thursday with trading volume above its three-month daily average of 21.8 million shares. Heres what analysts said about J.C. Penney. Kimberly Greenberger, Morgan Stanley (Underweight; $5.50 PT) While there were a few positive surprises, JCPs 3Q results highlighted how difficult it is to recover both sales and GM in this environment. Flat comps against negative MSD y/y comparisons leave us less confident in our revenue forecasts. Lower PT to $5.50 and reiterate UW. JCP missed 3Q top-line expectations materially and 4Q guidance appears aggressive: Flat 3Q comps (vs. 2.5% consensus) imply a 600-bp sequential deceleration from Q2. On a 2-year stacked basis, the deceleration is 110 bps. Management had originally guided 3Q comps to +MSD, but lowered it to +LSD on 10/8 after a slowdown in Sep. Comparisons get 680 bps more difficult next quarter, and managements 2-4% 4Q SSS guidance implies 880-1080 bps of sequential acceleration, which we view as unlikely. We lower our 4Q [same-store sales expectations] to 1% and FY14 to 3.1%. Must Read: Plunging Gas Prices Find Their Way to J.C. Penney Cash Registers Wayne Hood, BMO Capital Markets (Underperform, $7 PT) Excluding the asset gain, there was clear progress as 3Q14 adjusted EBITDA was $12 million compared with last years whopping $267 million loss and our forecast of $2 million. Comp-store sales were flat with last years 4.8% decline as industry-wide sales slowed post August and the company had less clearance. Sales of clearance merchandise were down 30% from last year and will likely continue be a drag on sales growth until the 2Q15, but we expect it to be a benefit to GM rate (4Q14 GM rate expected to increase 500-600 bps). By month, August was the strongest month, but then sales weakened in September before a more favorable trend developed in October. Management remained optimistic about 4Q14, offering up expectations that comp-store sales could increase 2-4% against 2% growth last year as sales of early fall merchandise rose mid-single digit in 3Q14. We are less sanguine and reduced our 4Q14 comp-store sales forecast to 2% from 4% and our 2015 annual estimate to 3.5% from 4.0%. We now estimate 2014 EBITDA of $387 million, inclusive of $160 million in asset gains compared with our prior $312 million forecast. At this juncture, we see the company having sufficient >$2.1 billion in total liquidity into 2015. Our Underperform rating reflects our view that the current equity value per share of $7.76 implies a larger recovery in earnings/cash flow and improvement in capital structure than seems likely when compared with comparable department store retailers. William Frohnhoefer, BTIG (Neutral) JCP reported earnings last night that, judging by the tone of trading after the close, the market found fairly underwhelming. There are some good reasons for this, most prominently the lack of year over year growth in same store sales. What we find interesting is the remarkable stability in sequential sales figures over the past three quarters of the Ullman turnaround: revenue has barely moved 100bps in the period. ... The true operational turnaround story at JCP is really the improvement in gross margins, the solid management of SG&A costs, and the arduous restructuring of the companys inventory. In the absence of hard data on traffic, conversion, and revenue per customer it is difficult to get conviction that customers alienated by the Johnson experiment have truly returned. What is clear is that current management has done a much better job of extracting value from the customers that remain. We remain Neutral on JCP shares because, while the companys operations and balance sheet are now on a manageably even keel, we cannot identify discrete catalysts that will take the company from a respectably stable operator with a lower sales base to a clear growth story. JCP management has accomplished all that could reasonably be asked of them, but creating organic new traffic remains a difficult proposition and not only for JCP. Jenna Giannelli, Citigroup (Marketweight) With all the companys efforts and initiatives to grow its top-line, we would have expected SSS to be positive in the quarter, and view the guidance for traffic decline in 4Q as a headwind going into year-end. Management cited 3Q SSS as being negatively influenced by a difficult YoY clearance comparison and warm fall weather. The company released Q4 guidance for SSS of +2% to +4%, gross margin increases of 500 to 600bps YoY, and SG&A expenses slightly above last years levels. Also, the company affirmed its year-end guidance for $2.1bn liquidity, and guided to $250mm of year-end capex. We are Marketweight JCP and are Neutral on the bonds across the structure but remain cautious of longer-term revenue and EBITDA goals hinged upon improvement in center core, home, and online businesses. Though liquidity is not an issue near term, we still question the sustainability of lower, trough levels of capex and SG&A spend, and JCPs high leverage by year end (11.5x we estimate). We believe longer term challenges exist, and note the pace of top line improvement is more measured than needs to be seen to recover to the companys once $17bn revenue line. We also underscore the fact that the companys guided FCF generation of positive for the full year is driven solely by a healthy working capital inflow. That said, we are impressed with gross margin expansion in recent quarters achieved via private label penetration mix and reduction of clearance sales. That, in conjunction with the companys ability to shore up liquidity and term out incremental debt, has bought JCP time and optionality to improve the top line. We see few near term negative catalysts and view the next meaningful data point as 4Q results (which we wont know until March-15) keeping us Neutral at this time. Must Read: Macys and J.C. Penney Join Starbucks in Offering Same-Day Delivery Service TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: We rate PENNEY (J C) CO (JCP) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The companys weaknesses can be seen in multiple areas, such as its generally high debt management risk and generally disappointing historical performance in the stock itself. Highlights from the analysis by TheStreet Ratings Team goes as follows: The debt-to-equity ratio is very high at 2.09 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. In its most recent trading session, JCP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. The companys current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) COs return on equity significantly trails that of both the industry average and the S&P 500. PENNEY (J C) CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$6.07 versus -$4.49 in the prior year. This year, the market expects an improvement in earnings (-$2.56 versus -$6.07). 36.01% is the gross profit margin for PENNEY (J C) CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -6.14% trails the industry average. You can view the full analysis from the report here: JCP Ratings Report Must Read: J.C. Penney Names Marvin Ellison as CEO: What Wall Streets Saying -Written by Laurie Kulikowski in New York. Follow @LKulikowski // 0;if(!d.getElementByIdid)){js=d.createElement(s);js.id=id;js.src=//platform.twitter/widgets.js;fjs.parentNode.insertBefore(js,fjs);}}(document,script,twitter-wjs); // ]]> Click to view a price quote on JCP. Click to research the Retail industry. By twocents@thestreet (Laurie Kulikowski) NEW YORK (TheStreet) -- J.C. Penney shares tumbled roughly 10% on Thursday following third-quarter results that didnt impress investors. The Plano, Texas-based department store chain reported net sales that slipped from a year ago to $2.76 billion. Same-store sales were flat for the quarter, below J.C. Penneys guidance of low-single-digit growth. That said, the retailer was able to post a narrower net loss of 62 cents a share compared to a loss of $1.94 in the year-earlier period. J.C. Penneys gross margin also improved by 710 basis points to 36.6% of sales for the quarter from 29.5% in the same quarter last year. Must Read: 20 Stocks That Could Beat the Market in November: Priceline, U.S. Steel Lead Way For the full year, J.C. Penney now expects same-store sales to rise between 3.5% and 4.5% vs. the previous mid-single digit guidance. Gross margin is expected to rise between 500 and 600 basis points above last year, it said. Shares were down 9.9% to $6.99 on Thursday with trading volume above its three-month daily average of 21.8 million shares. Heres what analysts said about J.C. Penney. Kimberly Greenberger, Morgan Stanley (Underweight; $5.50 PT) While there were a few positive surprises, JCPs 3Q results highlighted how difficult it is to recover both sales and GM in this environment. Flat comps against negative MSD y/y comparisons leave us less confident in our revenue forecasts. Lower PT to $5.50 and reiterate UW. JCP missed 3Q top-line expectations materially and 4Q guidance appears aggressive: Flat 3Q comps (vs. 2.5% consensus) imply a 600-bp sequential deceleration from Q2. On a 2-year stacked basis, the deceleration is 110 bps. Management had originally guided 3Q comps to +MSD, but lowered it to +LSD on 10/8 after a slowdown in Sep. Comparisons get 680 bps more difficult next quarter, and managements 2-4% 4Q SSS guidance implies 880-1080 bps of sequential acceleration, which we view as unlikely. We lower our 4Q [same-store sales expectations] to 1% and FY14 to 3.1%. Must Read: Plunging Gas Prices Find Their Way to J.C. Penney Cash Registers Wayne Hood, BMO Capital Markets (Underperform, $7 PT) Excluding the asset gain, there was clear progress as 3Q14 adjusted EBITDA was $12 million compared with last years whopping $267 million loss and our forecast of $2 million. Comp-store sales were flat with last years 4.8% decline as industry-wide sales slowed post August and the company had less clearance. Sales of clearance merchandise were down 30% from last year and will likely continue be a drag on sales growth until the 2Q15, but we expect it to be a benefit to GM rate (4Q14 GM rate expected to increase 500-600 bps). By month, August was the strongest month, but then sales weakened in September before a more favorable trend developed in October. Management remained optimistic about 4Q14, offering up expectations that comp-store sales could increase 2-4% against 2% growth last year as sales of early fall merchandise rose mid-single digit in 3Q14. We are less sanguine and reduced our 4Q14 comp-store sales forecast to 2% from 4% and our 2015 annual estimate to 3.5% from 4.0%. We now estimate 2014 EBITDA of $387 million, inclusive of $160 million in asset gains compared with our prior $312 million forecast. At this juncture, we see the company having sufficient >$2.1 billion in total liquidity into 2015. Our Underperform rating reflects our view that the current equity value per share of $7.76 implies a larger recovery in earnings/cash flow and improvement in capital structure than seems likely when compared with comparable department store retailers. William Frohnhoefer, BTIG (Neutral) JCP reported earnings last night that, judging by the tone of trading after the close, the market found fairly underwhelming. There are some good reasons for this, most prominently the lack of year over year growth in same store sales. What we find interesting is the remarkable stability in sequential sales figures over the past three quarters of the Ullman turnaround: revenue has barely moved 100bps in the period. ... The true operational turnaround story at JCP is really the improvement in gross margins, the solid management of SG&A costs, and the arduous restructuring of the companys inventory. In the absence of hard data on traffic, conversion, and revenue per customer it is difficult to get conviction that customers alienated by the Johnson experiment have truly returned. What is clear is that current management has done a much better job of extracting value from the customers that remain. We remain Neutral on JCP shares because, while the companys operations and balance sheet are now on a manageably even keel, we cannot identify discrete catalysts that will take the company from a respectably stable operator with a lower sales base to a clear growth story. JCP management has accomplished all that could reasonably be asked of them, but creating organic new traffic remains a difficult proposition and not only for JCP. Jenna Giannelli, Citigroup (Marketweight) With all the companys efforts and initiatives to grow its top-line, we would have expected SSS to be positive in the quarter, and view the guidance for traffic decline in 4Q as a headwind going into year-end. Management cited 3Q SSS as being negatively influenced by a difficult YoY clearance comparison and warm fall weather. The company released Q4 guidance for SSS of +2% to +4%, gross margin increases of 500 to 600bps YoY, and SG&A expenses slightly above last years levels. Also, the company affirmed its year-end guidance for $2.1bn liquidity, and guided to $250mm of year-end capex. We are Marketweight JCP and are Neutral on the bonds across the structure but remain cautious of longer-term revenue and EBITDA goals hinged upon improvement in center core, home, and online businesses. Though liquidity is not an issue near term, we still question the sustainability of lower, trough levels of capex and SG&A spend, and JCPs high leverage by year end (11.5x we estimate). We believe longer term challenges exist, and note the pace of top line improvement is more measured than needs to be seen to recover to the companys once $17bn revenue line. We also underscore the fact that the companys guided FCF generation of positive for the full year is driven solely by a healthy working capital inflow. That said, we are impressed with gross margin expansion in recent quarters achieved via private label penetration mix and reduction of clearance sales. That, in conjunction with the companys ability to shore up liquidity and term out incremental debt, has bought JCP time and optionality to improve the top line. We see few near term negative catalysts and view the next meaningful data point as 4Q results (which we wont know until March-15) keeping us Neutral at this time. Must Read: Macys and J.C. Penney Join Starbucks in Offering Same-Day Delivery Service TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation: We rate PENNEY (J C) CO (JCP) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The companys weaknesses can be seen in multiple areas, such as its generally high debt management risk and generally disappointing historical performance in the stock itself. Highlights from the analysis by TheStreet Ratings Team goes as follows: The debt-to-equity ratio is very high at 2.09 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. In its most recent trading session, JCP has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time. The companys current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) COs return on equity significantly trails that of both the industry average and the S&P 500. PENNEY (J C) CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$6.07 versus -$4.49 in the prior year. This year, the market expects an improvement in earnings (-$2.56 versus -$6.07). 36.01% is the gross profit margin for PENNEY (J C) CO which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -6.14% trails the industry average. You can view the full analysis from the report here: JCP Ratings Report Must Read: J.C. Penney Names Marvin Ellison as CEO: What Wall Streets Saying -Written by Laurie Kulikowski in New York. Follow @LKulikowski // 0;if(!d.getElementByIdid)){js=d.createElement(s);js.id=id;js.src=//platform.twitter/widgets.js;fjs.parentNode.insertBefore(js,fjs);}}(document,script,twitter-wjs); // ]]> Click to view a price quote on JCP. Click to research the Retail industry. ift.tt/1gB4pon
Posted on: Thu, 13 Nov 2014 16:26:13 +0000
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