J.C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently posted second-quarter 2011 results.
Street analysts had a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
J.C. Penney’s quarterly earnings of 7 cents a share came a penny ahead of the Zacks Consensus Estimate as well as the prior-year quarter’s earnings.
The quarterly sales of $3,906 million fell short of the Zacks Consensus Estimate of $3,928 million, and inched down 0.8% from the prior-year quarter.
The Plano, Texas-based J.C. Penney, provided guidance for third-quarter 2011 comparable store sales growth in the range of 2% to 3%, while total sales is expected to increase 250 basis points less than comparable store sales.
Management now expects third-quarter 2011 earnings between 15 cents and 20 cents a share, including restructuring charges of about 5 cents.
(Read our full coverage on this earnings report: J.C. Penney Beats by a Penny)
Agreement of Estimate Revisions
Estimate revision trends for the upcoming third-quarter 2011 portrayed negative sentiments among the analysts. In the last 7 days, 4 out of the 10 analysts covering the stock decreased their estimates for third-quarter 2011. For fourth-quarter 2011, 3 analysts revised their estimates in the downward direction.
For fiscal 2011 and 2012, 6 and 7 analysts, respectively, have decreased their estimates in the last 7 days, while none of the analysts increased their projections.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 came down by 16 cents to $1.75, and for fiscal 2012, the Estimate tumbled 15 cents to $2.22.
For third-quarter 2011, the Zacks Consensus Estimate fell 10 cents to 18 cents, and for fourth-quarter 2011, it went down by 8 cents to $1.25 a share in the last 7 days.
The current Zacks Consensus for third-quarter 2011 is pegged from a low of 16 cents to a high of 21 cents. For fiscal 2011, the estimates range from $1.68 to $1.80.
Our View
J.C. Penney’s 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.
However, the global credit markets have recently undergone significant disruption creating difficulties for companies to obtain financing on reasonable terms. This could considerably increase cost of borrowings, diminish the ability to obtain additional financing or refinance the existing long-term obligations, and may also deter J.C. Penney’s expansion plans.
Moreover, 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.
J.C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.
Currently, we have a long-term Neutral rating on the stock. However, J.C. Penney holds a Zacks #4 Rank, which translates into a short-term Sell recommendation.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
