Analyst sees J.C. Penney incurring more costs

Morgan Stanley analyst cuts estimates, expecting more costs in J. C. Penney sales plan

Associated Press

NEW YORK (AP) -- A Morgan Stanley retail analyst says she doesn't expect J.C. Penney to return to profitability until 2016, because the struggling department store chain's return to sales events requires more marketing dollars that will boost expenses.

The outlook comes as Penney earlier this month began adding back some of the temporary sales it ditched last year in hopes of luring shoppers who were turned off when the discounts disappeared. Under CEO Ron Johnson, Penney is also adding price tags or signs for more than half of its merchandise to show customers how much they're saving by shopping at the chain. It's backing the strategies with new print and TV campaigns.

The reversal comes on the one-year anniversary of its original vow to almost completely get rid of the sales that Americans covet but that cut into a store's profits. The idea was to offer everyday prices that customers could count on rather than the nearly 600 fleeting discounts, coupons and sales it once offered. But shoppers have been turned off and Penney is expected to report its fourth straight quarter of big sales drops and losses on Feb. 27.

"After digesting recent JCP news, we are more cautious on (selling, general and administrative expenses)" writes Kimberly C. Greenberger, an analyst at Morgan Stanley in a report published Friday. "We think JCP reinstating sales likely drives higher advertising and signage support."

Greenberger says for the company's fourth-quarter, she estimates the expense-to-sales ratio to be 30.7 percent, up from 27.9 percent. For the fiscal 2012 year that ended last month, she now expects a loss of $2.07 per share, instead of a loss of $1.83. For the current fiscal year, she estimates a loss of 55 cents per share, instead of a loss of 15 cents. For fiscal 2014, she anticipates a loss of 10 cents per share, instead of a profit of $1.30. And for fiscal 2015, she projects a profit of 30 cents per share, versus a previous forecast of $1.75 per share.

Greenburger says she doesn't expect revenue at stores opened at least a year to turn positive until the second half of this year. That is a key metric for measuring a retailer's health. She also expects that shares, which have taken a beating, will hit $13 in the next 12 months.

Penney's shares slipped 8 cents to $19.86 in Friday afternoon trading. Investors have sent shares of Penney down more than 55 percent from a peak of $43 in the days after the pricing plan was rolled out a year ago.

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