A brutal sales slump … plunging stock price … management changes – is there anything that hasn’t happened to longtime retailer J. C. Penney Corp. (JCP.N)? Well, they say everything old is new again and in the spirit of a new year, we take a look at whether JCP might be in style once again.
Is it possible that JCP has at least stopped the bleeding? For the first time in the last couple of years, analysts are finally raising their earnings estimates and the company may even beat those estimates, based on the positive StarMine Predicted Surprise of 25%. There are some other signs that Penney might be putting some new ideas on the racks. Let’s dig deeper.
Source: Eikon/StarMine
Chic margins?
One sign of hope is improving trailing 4Q operating profit margins. The chart shows how the retailer struggled with margins as it discounted and cut prices to attract customers until last year.
Then, JCPenney finally managed to turn operating margins around and judging from some management comments, it looks like the critical fourth quarter is likely to continue that trend. Since the trough of -14% operating margins a little more than a year ago, they have bounced back to -2% in the last quarter, which although not stellar by any measure, shows some sign of recovery.
Final results from the holiday season are likely to be the real test and management has already given positive indications. Better margins could mean that the company continues to improve its financial position without sacrificing margins.
Source: Eikon/StarMine
Analysts awakening
These indicators seem to have caught analysts’ attention. In the past 60 days they have raised estimates — and may not have raised them enough. The I/B/E/S consensus estimates are currently 11 cents per share, but the StarMine SmartEstimate, which puts more weight on the best analysts and the most recent estimates, is higher at 13 cents per share.
Same store sales growth for JCPenney is expected to be a healthy 3.5%, which would make it the fifth consecutive quarter of same store sales growth after nine quarters of negative growth.
While the company is not out of the woods yet, it’s encouraging to see some signs of life. It still remains a heavily shorted stock, and the balance sheet is far from strong, but given that other retailers have shown signs of weakness during the holiday season and JCPenney is showing signs of improvement, it bodes well for the future. It’s never easy to turn around a company when the industry is suffering, and the climbing estimates at JCPenney could be a sign that management is moving the company in a positive direction.
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