J. C. Penney Company Inc.’s (JCP) well diversified supplier base, compelling private and national brands, marketing campaigns, point-of-sale technology initiatives as well as effective cost and inventory management should drive sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost market share.
Management guided comparable-store sales growth of 3% to 4% and total sales growth of 1.5% to 2.5% for fourth-quarter 2010.
In order to enhance customer shopping experience, the company has been focusing on remodeling, renovating and refurbishing of stores as well as refreshing its website functionality due to continued migration to online shopping. We remain confident about J. C. Penney’s top-line growth driven by the launch of compelling new merchandise and the JCP Rewards program.
The in-store Sephora departments continue to outperform in drawing younger and more affluent customers. The company targeted 75 Sephora shops in fiscal 2010 as against 64 in 2009, and plans to open a total of 600 by 2014. The Sephora concept inspires confidence and is expected to be a significant revenue driver.
In order to drive sales and improve traffic, J. C. Penney added ‘Liz Claiborne’, ‘MNG by Mango’ and ‘Call it Spring’ brands to its portfolio. Management expects ‘MNG’ and ‘Call it Spring’ brands to be in 600 stores by fall 2011.
J. C. Penney’s comparable-store sales for November 2010 climbed 9.2%, reflecting a sharp improvement from a decline of 1.9% and a fall of 5.9%, witnessed in October 2010 and November 2009, respectively. Total sales also portrayed an improvement. After experiencing a drop of 3.3% in October 2010, total sales for November grew 7.2% to $1,845 million from $1,721 million in the same month last year.
However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Moreover, the company’s sales of home products remained sluggish due to the weak housing market. J. C. Penney has been losing its sheen in this category in the last few years. Sales for the home division now account for 19% of total sales mix in fiscal 2009, down from a penetration of 22% achieved in 2005. This may weigh upon the company’s overall sales results.
Given the pros and cons, we prefer to be Neutral on the stock. Moreover, J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, and correlates with our long-term recommendation.
PENNEY (JC) INC (JCP): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
Zacks Investment Research
