Back-to-school sales petered out last quarter and took JCPenney’s (JCP) bottom line with them. That means JCPenney is in the same place as Macy’s (M) and several other retailers, as JCP stock hinges on the holiday selling season more than usual.
To be fair, JCP has made significant progress in its turnaround. No longer is the company haunted by the specter of bankruptcy. But that hardly means JCPenney is thriving.
Indeed, weak third-quarter sales and a net loss continue the retailer’s trend of market-share loss to competitors. Unless JCP can reverse the trend, questions about its survival will surface once again.
The disastrous reign of Ron Johnson as CEO appears to have scared some customers away forever. For all of last year, JCP sales plunged 25%. Luring even half of them back still represents a revenue decline from years past. This is a deep hole.
If JCP stock had anything going for it, it’s that beaten-down shares in a turnaround-story can put up crazy gains. Just look at what happened to Best Buy (BBY) stock last year when it didn’t go out of business.
JCPenney, too, remains among the living even though the market priced it for death, but the rebound trade hasn’t worked out at all. JCP stock is off 15% for the year-to-date, lagging the broader market by 25 percentage points.
No Rebound for JCP Stock
Indeed, the only way JCP was a good trade this year is if you precisely timed it, buying in February and selling in September. Outside of that, JCP has been a dud, especially for any investors with longer horizons. JCP stock lost 75% over the last three- and five-year periods.
And third-quarter results sure don’t make Penney’s look like a buy now. If it weren’t for costs cuts, the quarter would have been a horror show, which puts even more store closings back on the agenda. Those cuts would help boost same-store sales, but it sure is hard to increase revenue when the store base is only shrinking.
For the most recent quarter, JCP posted a narrower loss of $188 million, or 62 cents per share, compared with $489 million, or $1.94 per share, a year earlier. On an adjusted basis (which is what the market cares about), earnings came to 77 cents per share. That missed analysts’ average forecast by 2 cents, according to a survey by Thomson Reuters.
Revenue fell 0.5% to $2.76 billion, but analysts were looking for the top line to hit $2.81 billion.
JCP blamed a weak back-to-school shopping season for the shortfall, and that’s likely a large contributing factor in the poor showing. After all, we’ve seen the same thing happen to Macy’s, Gap (GPS) and Kohl’s (KSS), among others, in quarterly earnings.
But JCP has plenty of company-specific problems as well, and one of the worst is that it keeps missing projections.
Macy’s posted a mixed-to-weak quarter, but a rosy outlook for the holiday selling season lifted shares. JCP, however, doesn’t get the benefit of the doubt. The retailer expects fourth-quarter same-store sales — a key measure of a retailer’s health — to rise 2% to 4%. That would be great and indicate solid progress in JCP rebuilding its image with mass-market customers.
Bottom Line
There’s no reason to take JCP at its word. The company has missed Wall Street’s earnings estimates for five straight quarters, and come up short on the top line for four.
JCP may no longer be marked for death, but that’s doesn’t mean its healthy. Investors will have to wait until next year to see if JCP can manage to be more than a zombie operation.
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As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
