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J. C. Penney Up 32% in 3 Months: Can Efforts Aid Recovery?

Zacks Equity Research

J. C. Penney Company, Inc. JCP has been undertaking various initiatives to get back on track. Some notable efforts in this direction include managing inventory levels, rebuilding top management, improving in-store and omni-channel customer experience, and increasing investment in women’s apparel, product launches and store renovations.

Backed by such endeavors, shares of the Zacks Rank #3 (Hold) company have gained 32.6%, significantly outperforming the industry’s growth of 5.6% in the past three months. The stock’s solid run on the bourses is also partly attributable to narrower-than-expected loss in third-quarter fiscal 2019.

 

That said, let’s delve deeper into the strategies that are aiding the stock’s revival process.

Turnaround Plans

J. C. Penney is trying hard to win back consumers’ confidence. In this regard, it has launched a brand-defining store in Hurst, TX, which will serve as a lab for extensive consumer research. 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 has added key national brands — including Instant Pot, Ninja, Brookstone and Sharper Image — to boost the top line.

Moving on, J. C. Penney launched an in-house brand — St. John’s Bay Outdoor — within the men’s department in its stores along with an Outdoor Shop. This shop will feature St. John’s Bay Outdoor, along with three new product lines namely American Threads, The American Outdoorsman and HI-TEC. Consumer feedback from the initiative is encouraging.

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 growing demand for high-quality second-hand products, provided at lower prices. This in-store experience is likely to cater to consumers, who look for sustainable apparel options. 

Also, the company launched a store checkout process to streamline tasks and enhance customer experience. In this regard, it tested a centralized pickup in returns to improve the in-store experience and in turn omni-channel customer experience. Moreover, it has been shutting underperforming stores and revamping existing ones to revive sales.

Furthermore, it integrated Fit Bit in its assortments of health and wellness products. The company also unveiled Shaquille O`Neal XLG brand, specially designed for big and tall customers, who require special size products. The launch of Fanatics shops, designed to attract sports fans to purchase the newest and popular team apparel inside their local JCPenney store, is another attempt to venture into new variety of products.

Headwinds

Despite such efforts, the company continues to witness dismal sales performance in the third quarter, with sales missing the consensus mark for the third consecutive period. Total net sales fell 10.1% year over year on soft comparable store sales. Aggressive promotions to reduce slow-moving and aged inventory also hurt the top line to some extent.

Markedly, comps in the quarter declined 9.3% year over year due to the company’s exit from the major appliance and in-store furniture categories, which 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. Excluding these exits, comps decreased 6.6%, owing to lower transactions, partly offset by higher average transaction value.

Moving forward, the headwinds are expected to persist in the fourth quarter. In fact, management continues to expect a comps decline of 7-8%. Excluding the impact of the exit from the major appliance and in-store furniture categories, comps are still anticipated to decline 5-6%.

Bottom Line

All said, we hope that the aforementioned efforts will cushion the company’s top line and thus keep the momentum going on in the near term.

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