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J.C. Penney (JCP) Down 18.8% Since Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for J.C. Penney Company, Inc. Holding Company JCP. Shares have lost about 18.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

J. C. Penney Q3 Loss Lower than Expected; Sales Lag

J. C. Penney Company reported adjusted loss per share of $0.21 in third-quarter fiscal 2016, narrower than the Zacks Consensus Estimate of a loss of $0.22. In the year-ago quarter, the company’s adjusted loss was $0.46 a share. Including one-time items, J. C. Penney reported quarterly loss of $0.22 a share, lower than a loss of $0.38 in the year-ago quarter.

The company’s total net sales of $2,857 million missed the Zacks Consensus Estimate of $2,944 million and declined 1.4% year over year, after witnessing an increase of 1.5% in the preceding quarter. Weakness in apparel affected the company’s overall sales. Notably, the company’s sales have missed the Estimate for the third consecutive quarter. Comparable-store sales (comps) decreased 0.8%, after increasing 0.4% in the preceding quarter, versus 6.4% jump in the year-ago period.

Sturdy performance was witnessed across Sephora, Home, Salon and Fine Jewelry divisions. Management remains optimistic about its roll out of appliances, new Sephora locations, center core refreshes, in-store .com fulfillment and buy online, pick up in store same day initiative. The company anticipates realizing the full impact of these initiatives in fourth-quarter fiscal 2016.

Gross profit in the quarter decreased 1.8% to $1,062 million, while gross margin contracted 10 bps to 37.2%. J. C. Penney’s adjusted EBITDA improved to $174 million from $111 million in the prior-year quarter, whereas adjusted EBITDA margin increased 230 bps to 6.1%.

Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $183 million, long-term debt of $4,509 million and shareholders’ equity of $1,140 million. Merchandise inventory levels decreased 0.6% to $3,691 million.

Moreover, in the reported quarter the company reported negative free cash flow of $315 million. In the year-ago quarter, the company had reported negative free cash flow of $324 million. Further, the company incurred capital expenditures of $211 million in the quarter, up from $93 million in the year-ago quarter.

Guidance

Following, dismal sales in the third quarter, the company had lowered its comps guidance for fiscal 2016. Management now anticipates comps growth in the range of 1–2%, down from the previous guidance of an increase of 3–4%. The company anticipates gross margin to be flat year over year, down from the prior guidance of an increase in the range of 10–30 bps. Adjusted earnings per share are likely to be positive in fiscal 2016. EBITDA is expected at around $1 billion.

The company expects fourth-quarter comps to be in the range of nearly 2–5%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four upward revisions for the current quarter compared to three downward.

J.C. Penney Company, Inc. Holding Company Price and Consensus

 

J.C. Penney Company, Inc. Holding Company Price and Consensus | J.C. Penney Company, Inc. Holding Company Quote

VGM Scores

At this time, J.C. Penney's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending upward for the stock. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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