CYNK now has a market cap in excess of JCP, but may not even be a functioning business, and was recently a penny stock (no pun intended) selling for close to a penny (no pun intended). If you ever wondered about the collective wisdom of individual investor ignorance, CYNK may be your answer.
A very small bank in Portugal, which has been know to be in trouble for a long time, is likely to miss an interest payment. This was combined with weak economic reports from China, Japan, and Europe. So those convinced that the market was heading for a fall announced that today was the day that their prescience would be recognized. When one is looking hard enough for a disaster, just about anything will do.
Sorry to disappoint, but this is not late 2008 and a small bank in Portugal is not going to ignite another credit crisis. If China and Japan are not doing as well as they once were, it only means that the USA is losing jobs at a slower pace.
Any fuel users that can switch from coal to gas will do so. The wear and tear on equipment burning coal is much greater than with gas. Coal has to be really cheap to justify its use. Met coal is a different animal, but I would think it was hurt by the recent lowering of the world growth forecast.
Mike, Sears will not disappoint you. However, Sears could remain in the retail business for several years while it monetizes other assets, so the benefits to JCP would accrue slowly.
One doesn't need to understand anything about retailing to realize that all members of the industry fall into one of two categories. The first has a business plan that results in falling revenue; the second has a business plan that's delivering improved revenue. Sears is an example of the first; whereas, JCP is an example of the second. It's really that simple.
Sears could try to recovery by altering its business strategy, as Ullman did when he returned in 2013. However, there are no visible signs that Sears is moving in that direction.
Some may think these companies are similar, but they're actually as different as night and day. JCP has a business plan which has been validated, and it's run by a retail-experienced CEO. Sears has a failed retail business plan which is unable to ever achieve an operating profit. Although many will continue to visit Sears because it offers a product that the customer really wants, its current merchandise assortment is unable to draw enough customers to support the fixed costs of running the business.
But two question are most important: 1. How will Sears return money to shareholders as the retail business winds down? 2. How will Sears' demise affect JCP?
On the Sears web site one can arrange to rent retail space within any Sears store. Pretty amazing! Clearly, Sears is already beginning the process of monetizing real estate as an entity separate and distinct from the retailing operation. So I have to assume that Sears is simply going to allow the retail operation to atrophy while it concentrates on assets that can be monetized.
With Sears leaving the portion of the retail market on which JCP is focused, shoppers will have to find an new venue. All most will have to do is walk to the other end of the mall. Although it is possible, it's highly unlikely that Sears will sell out whole stores to retailers able to compete with JCP. So while Sears goes the way of the dodo bird, JCP will benefit. Since Sears revenue in the category of products in which it competes with JCP is so large, it has a great big chunk of market share to give away.
Tngenass, I taught economics at the college level. Everything you quoted is consistent with today's post.
The economy of today is part of a trend which began in 1982 when the current account went negative. It's the equivalent of a family continuing to spend more than they make. It's possible to survive under these conditions for the long term, but only if business investment constitutes a fairly large percentage of the economy, which is not now true in the USA.
Investment, as defined in economics, is money spent to build plant and equipment for future production of goods and services. Neither multifamily nor single family housing is investment, but both are consumption. As money is spent on housing, debt increases but earning capacity is unchanged, and we get deeper in this hole we're digging.
However, it will be years before this problem actually comes home to roost. The Fed, because it has no other options, will mitigate the effect of the debt burden by keeping interest rates low. That will enable the USA to continue to spend money it doesn't have for a very long time. We will just keep going through these periods during which people become concerned about the poor recovery, which temporarily depresses the market. In between will be periods of relative optimism.
I don't expect the economy to go into recession, because it has never properly recovered from the recession. We can't fall very far it we're already in a hole.
JCP will do well because it will continue to regain market share. By virtue of its orientation and market position, it will tolerate economic weakness well, as was the case from 2008 thru 2010.
Today's price action is driven by concerns over general weakness in the economy, and not anything specific to JCP.
The economy has had a #$%$-poor recovery because of the high current account deficit, which means the USA is spending much more than it makes, and continues to go deeper into debt each year. The debt burden on households is now so great that a vibrant recovery is virtually impossible. About 3.5 cents of every dollar spent goes to foreign countries, and then returned to us as a loan. As a country, we're hemorrhaging at an alarming rate. It can all be traced to our willingness to allow other countries to manipulate their currency; first Japan, and more recently, China.
High interest rates are also virtually impossible, since a consumer based economy with insufficient income to support its debt load would be quickly thrust into recession with any increase in interest costs. The thirty year fall in the 10YR rate exactly correlates with the increase in foreign debt. Current concern over an increase in short rates is reducing the slope of the yield curve, which is always bad for the economy. Since the Fed has an empty quiver, we're looking at a long period of economic weakness in which growth will average between 1% to 2%.
Within the retail sector, JCP will fare better than most. People will focus on getting by, so will concentrate on best value, which is the JCP marketing thrust. Although the market price of JCP stock will vary, perhaps substantially, the financial performance of the company will continue to improve.
The Fed has been so active that the economy acts in reaction to the Fed, not fundamentals. Investment decisions are now driven by non-economic issues. It's become a game of craps.
The notion that JCP should be liable for a contract violation by MSLO and Macy*s is a reach. Tortuous interference is a part of common law that was never intended to apply in cases where sophisticated and fully informed entities, specifically MSLO, were acting in accordance with their own free will. This is the equivalent of, "The devil made me do it." And even if JCP was complicit, what portion of the damages could they possibly be liable for? Maybe 10%? I bet that MSLO got off scot-free in their confidential resolution to the issue.
If you're ticketed for speeding, do you sue the auto manufacturer for tortuous interference because the manufacturer gave you the ability to speed knowing full well that you would eventually do so? What liability do gun manufacturer's have? JCP enabled MSLO to violate its contract with Macy*s, but did not force it to do so. In that sense it did not interfere, as required by common law, but JCP only enabled a violation.
If you consider the implications of this situation to MSOL, Macy*s, if right in their claim, would effectively have complete control over certain portions of their business, though the agreement specifically provides otherwise.
But it gets even better. The weakest quarter of 2013 was Q3, the ratio for which (against Q2) was 104% relative to an average of 107%. Clearing out RJ's mistakes at a discount was in full swing. So if Q2 comes in at $2850, and Q3 is only at the average of 107%, Q3 will come in at a 10% increase, YOY. Any contribution of the turnaround is going to boost the numbers farther into double digit territory.
The day is coming that proof of a turnaround will be undeniable for even the most ardent bear. When that happens, we will all want to be as long as possible.
Conservative estimates of revenue and expenses for 2014 and 2015 gets me to a stock price of $15 by the end of 2015 assuming a ratio of 6.5 on the trailing twelve month EBITDA, and $28 based on the forward looking twelve month EBITDA. When people start connecting the dots, this stock will begin to move, perhaps dramatically.
I'm glad it did. I sincerely believe you're much better in than out.
As I've already mentioned on this board, I've looked at the historical relationships between the individual quarters, which I believe is more meaningful than looking at YOY data. From 2007 until 2010, inclusive, Q1 sales averaged 67% of the rate of the previous Q4 (actual ratios were 65%, 65%, 67%, and 71%). But in 2014, that ratio was 74%. That amounts to a 10.4% increase over the average, which is dramatically greater than even the rise in 2010, which reflected recovery from the Great Recession. A small variation could be treated as insignificant, but it's my opinion that such a large change can only be explained by a successful turnaround. Since a successful turnaround can only be explained by a change in JCP shopper behavior, i.e. return of the former JCP customers that the bears said would be slow to return, a similar increase should be observed in all quarters going forward. The Q1 increase constitutes a step change that forms a new base to JCP revenue levels. The recent comment by ITG Research is no surprise to me, because it's exactly what my model predicts.
The average ratio for five years for Q2 to Q1 is 101%. So with absolutely no contribution from a continuing recovery, sales for Q2 should come in at $2829. This is over the average analyst estimate. In fact, ITG is forecasting only $2786, even on the back of favorable channel checks. These numbers are much too low. Even with a very small contribution from the turnaround, We are likely to see something on the order of $2850 to $2900. The YOY change, which is more important to the uninformed, will be determined by the Q2 to Q1 ratio in 2013, which was 101%, relative to the ratio in 2014, . So if Q2 comes in at even the low of $2850, the YOY gain will be 7%. A more reasonable result for Q2 of $2900 will give us a YOY gain of 8.8%. So we're probably looking at another good pop with the Q2 release.
Good to have you back Markit.
The WSJ had an article on Thursday about increased demand for retail space and increasing rental rates. As an anchor tenant in many malls, JCP has a considerable advantage now that the economy is improving.
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