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J. C. Penney (JCP) Stock Falls Below $1: More Trouble Ahead?

Zacks Equity Research

Shares of J. C. Penney Company, Inc. JCP tumbled 7.5%, closing at a record low of 97 cents per share on Dec 27, giving it the label of a penny stock. Analysts pointed the company’s dismal show in the holiday season as one of the reasons behind the stock’s bearish run on the bourses. Rising losses, soft revenues and a drab Black Friday for the company have added to the woes. Industry experts cited that the company had a soft start to the festive season, unlike its rivals.

Definitely, unimpressive performance of this department store retailer during the third quarter of fiscal 2018 has also hurt investors’ sentiments. The company reported a loss and year-over-year decline in the top line. Further, the company’s margins slid, thanks to inventory liquidation. Also, comparable sales (comps) during the quarter went down 5.4% and is projected to decline further in fiscal 2018.

Moving on, J. C. Penney’s leadership status has been in the doldrums for quite some time. However, with the appointment of Jill Soltau as its new CEO, the company has undertaken initiatives such as brand makeover, enhancement of omni-channel capabilities and strategic partnerships as part of its turnaround efforts.

Earlier, the company changed its logo, store designs, advertisements and pricing model to attract consumers. But these strategies failed to deliver desired results. Moreover, critics have been constantly warning investors about J. C. Penney’s fate going in the same direction as that of Sears Holdings, which filed for bankruptcy.

Apart from these, the company has long-term debt of $4 billion that has marred its operational performance over the last few quarters. Also, J. C. Penney is not generating enough free cash flow to repay the same.

However, management is making efforts to get back on the growth trajectory. In this regard, management plans to right size inventory levels and shut down stores that will enable the company to focus on core brands and categories that fetch profitable sales. J. C. Penney has introduced a new value proposition, "Get Your Penney`s Worth,” under which selected items of private brands are available for just a penny.

The company is also taking initiatives to boost sales with special size offerings. In this regard, J. C. Penney unveiled Shaquille O`Neal XLG brand, especially designed for big & tall customers. It also launched fashion tween brand, Obsess, and redesigned Okie Dokie children’s private brand.

Further, the company has collaborated with Fanatics, Inc. to launch Fanatics shops to attract sports fans with the newest and popular team apparel inside their local J. C. Penney store. Its in-store Sephora departments continue to outperform by drawing more customers.

Although the company’s women’s apparel, beauty and jewelry categories have gained traction, we still believe it needs to work more on bringing trendy apparel to lure customers in the near future. As of now, J. C. Penney’s future appears bleak as it struggles to make things work.

Meanwhile, shares of this Zacks Rank #3 (Hold) company has lost 58.5% in the past six months, underperforming the industry’s decline of 18%. Further, the Zacks Consensus Estimate for fourth-quarter fiscal 2018 earnings have moved south in the past 60 days from 33 cents to 19 cents.

The Zacks Consensus Estimate for fiscal 2018 has gone down to -93 cents from -84 cents. This indicates exceedingly bearish analyst sentiment, reflected by five downward estimate revisions versus none upward in the same time frame.



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