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Can J. C. Penney's (JCP) Turnaround Efforts End its Woes?

Zacks Equity Research

J. C. Penney, Inc. JCP is still trapped in a polemical situation and things seem to be deteriorating for this departmental store chain retailer. Dwindling sales trend, partly attributable to dismal show in the holiday season, is one of its prime concerns. Apart from this, long-term debt has marred the company’s operational performance over the last few quarters. Also, J. C. Penney is not generating enough free cash flow to repay the same. Moreover, the company’s comparable sales (on a shifted basis) fell 4% in the fourth quarter of fiscal 2018.

Additionally, declining store traffic has been negatively impacting the company’s performance. Although its former CEO Ellison changed the company’s logo, store designs, advertisements and pricing model to attract consumers, these strategies failed to deliver desired results. J. C. Penney’s prior move to sell major appliances to get back on track was also slammed by critics. Instead, they felt that the company should have focused more on bringing in new fashion trends and enhancing its digital efforts.

Given these downsides, the current CEO Jill Soltau stated that the turnaround process will be lengthy. In fact, this Zacks Rank #3 (Hold) stock has decreased 12.4% in the past six months compared with the industry’s decline of 11.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

In this regard, the company, which shares space with Macy’s M, has undertaken initiatives such as brand makeover, omni-channel capabilities and strategic partnerships as part of its turnaround efforts.

Can the Stock Revive?

Keeping in these lines, the company is on track with its plans to right size inventory levels and shut down stores to help focus on core brands and categories that fetch higher sales.

Better-than-expected bottom line in fourth-quarter fiscal 2018 was a breather for the company. During this time frame, inventory declined 13.1% year over year. Management also revealed that it will continue to reduce unproductive inventory and also take preventive measures to stop the piling up of excess inventory in the future.

Additionally, J. C. Penney shuttered 18 stores in 2019. Further, the company will shut down 9 ancillary home and furniture stores. This move is in sync with its plan to focus more on core categories such as apparel and soft home. Going ahead, the company is poised on women’s apparel category, which has been performing well for a while now.

Wrapping up

Although management is leaving no stone unturned to revive the stock, the efforts are yet to yield results for the company. Per media reports, the company has to come up with something big enough to change its cliched image in the market and combat competition hurdles, specifically from behemoths like Amazon AMZN and Walmart WMT that are dominating the retail space.
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