J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported soft sales results for the five-week period ended July 02, 2011. The company’s comparable-store sales for June 2011 inched up 2.0% with total sales plummeting 0.3% to $1,545.0 million.
During the period under review, The Plano, Texas-based J. C. Penney registered comparable-store sales growth across fine jewelry and women’s and men’s attire, with the northeast region recording maximum sales.
Following the soft performance and higher marketing costs, J. C. Penney now expects comparable store sales to increase in the range of 1% to 2% in the second quarter of 2011. The company expects earnings, including non-comparable charges, to be in line with the last year’s quarter.
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 bode well for sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost its market share.
Moreover, the in-store Sephora departments continue to attract younger and more affluent customers. These are part of J. C. Penney’s strategy to gain competitive advantage over drug stores, which gave their cosmetic sections facelifts in the recent years. The Sephora concept instigates confidence and is expected to be a significant revenue driver.
The company focuses on remodeling, renovating and refurbishing its stores in order to enhance customers’ shopping experience. Therefore, it also invigorates its website functionality, keeping in mind continued migration to online shopping.
We remain confident about J. C. Penney’s top-line growth based on compelling new merchandise and launch of JCP Rewards program.
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.
Currently, we have a long-term ‘Neutral’ rating 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’ recommendation.
