We recently initiated our coverage on J. C. Penney Company, Inc. (JCP) with a Neutral recommendation and a target price of $33.00. The company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora shops (located inside J. C. Penney stores), and home furnishings.
 
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 Sephora concept boosts confidence and is expected to be a significant revenue driver. The company also remains on track to deliver comparable-store sales growth and boost market share.
 
The company in order to enhance customer shopping experience 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.
 
However, the company’s sales of home products remained weak due to the sluggish housing market. J. C. Penney has been losing its sheen in this category in the last few years. Sales for the home division now accounts for 19% of total sales in fiscal 2009 down from 22% in 2005. This may weigh upon the company’s overall sales results.
 
Given the pros and cons, we prefer to be Neutral at this stage.
 

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