Respectfully to struggling department store chain Macy’s (M), if JCPenney (JCP) can manage to put up a decisive improvement in its holiday sales for 2015, then it’s not the environment … it’s you.
That’s right. While most other retailers were lamenting the ongoing bleeding of business to alternatives like Amazon.com (AMZN) and even less conventional retailers, JCPenney — still digging its way out of the hole Ron Johnson put the company in — was able to grow its November/December top line by 3.9%.
And yet, that’s not even the best part of the story for investors who’ve had the guts and patience to stick with JCPenney stock over the course of the turnaround effort.
JCPenney Holiday Numbers, Full-Year Outlook
The news was released Thursday morning … same-store sales for the nine-week stretch spanning November and December rolled in 3.9% better than the same nine week period from a year earlier. It was the second solid increase in holiday sales owners of JCP stock have been treated to.
That wasn’t the only treat for JCP owners on Thursday, however. The same news release confirmed the retailer was on pace to post EBITDA of $645 million in fiscal 2015, and would even generate positive free cash flow for the year. That’s twice the EBITDA figure the retailer produced in the prior fiscal year.
While no cash flow details were given, they’re presumably going to be better than the $239 million worth of operating cash flow driven a year earlier.
Online sales were a particular bright spot, reaching record levels for the two-month period.
CEO Marvin Ellison said of the results:
“Although we have much work to do, our strengthened omnichannel capabilities enabled our supply chain network to process millions of jcp.com orders this season, supported by 250 stores across the country that helped fulfill online orders using in-store inventory. With this level of selection, we saw more online customers take advantage of our in-store pick up option available at over 1,000 JCPenney stores nationwide.”
The Turnaround Is Working
On the verge of logging a second straight year of rising revenue and with operating income within reach, it’s difficult to say the turnaround isn’t working.
It’s not something many JCPenney stock shareholders were expecting to be able to say two years ago, a little more than a year after former Apple (AAPL) executive Ron Johnson took the helm as CEO and promptly ran the company into the ground. His treatment of JCPenney stores was the same as Apple’s store, unappreciative of the fact the two companies are catering to different customers, or at least different mindsets. While creative, the “new and improved” Ron Johnson brand of JCPenney was alienating to its core customer base.
The proof of the disastrous pudding: The company’s top line slumped from $17.3 billion in 2011 — the year Johnson was hired — to $11.9 billion in 2013, which was the year Johnson left.
For perspective, the company has generated $12.5 billion worth of revenue over the past four reported quarters. It’s still not a return to its glory days, but in light of the sheer volume of damage control and rebuilding the retailer was forced to take on, it’s a commendable effort.
It’s also a sign that at the very least, the retailer is on the right trajectory — with Ullman leading the charge. Of course, that should come as no real surprise. Not only was Ullman a retail veteran when he took charge two years ago, he was actually the former CEO, replaced by Johnson.
Moral of the story? Relevant experience matters.
Bottom Line for JCP Stock
While in many ways the strong success of JCPenney late last year doubles the strength of the indictment of rival Macy’s, it should be at least acknowledged that JCPenney had the advantage of starting its rebuilding effort with the bar set very low. Macy’s, in contrast, is being compared to record-breaking revenue from 2014; any misstep is going to look and feel magnified.
On the flipside, investors aren’t served by owning stocks in sympathy of a situation. JCPenney is growing right now, while Macy’s is struggling. That makes JCP stock a buy, albeit a speculative one, until the company can prove it’s capable of turning a consistent net (GAAP) profit.
Give it time though. As was noted, it’s on the right trajectory.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
