Not that 2016 has been a superb year for most stocks, but this year has been particularly unimpressive for retailers, unless your name is J C Penney Company Inc (NYSE:JCP). Kohl’s Corporation (NYSE:KSS) shares are down 8%. Macy’s Inc (NYSE:M) is up 8%, but is still in the hole to the tune of 47% from its 2015 peak. Nordstrom, Inc. (NYSE:JWN) shares have followed the same basic path as Macy’s shares have since peaking in mid-2015.
Yet, JCP has managed to make net progress of 34% year-to-date. It’s been an erratic gain, to be fair, with JCP stock trading as high as $11.99 and as low as $6.
It’s currently trading in the mid-$8’s, but it’s a curious standout, though. It may well be the retail industry’s best-kept secret.
Standout Performance From JCP
While owning Macy’s and Nordstrom shares has been torturous at times over the course of the past few months, it’s not as if their weakness wasn’t merited.
Macy’s ran into a significant sales headwind more than a year ago, and it’s not abated yet. The retailer reported a 4.2% dip in sales for the third quarter of this year, once again citing unusually warm weather and shifting consumer preferences that don’t hold clothing as a spending priority. Strong online competition is another whispered explanation. Ditto for Kohl’s and Nordstrom, albeit to lesser degrees.
Not JCPenney, though. Year-over-year quarterly earnings per share of JCP have been up every quarter since making the turn in 2014, and revenue growth has been almost as reliable, even if not as impressive.
Better still, while it’s not yet profitable on a full-year basis, this year is the year that’s expected to happen on the heels of a strong fourth quarter. Analysts are collectively looking for a profit of 14 cents per share this year. It’s not much, but it’s a far cry from the loss of $6.10 per share it posted for fiscal 2013, when the fallout from the Ron Johnson debacle was at its most painful height.
Why JCPenney Can Grow, Where Others Can’t
While the recent history is compelling, it is (as they say) history. An investment in JCP stock now is a bet on its future. Can this growth be sustained even while other retailers struggle?
Yes, the trend can be sustained.
The reason JCPenney has done well while others in its peer group haven’t isn’t a clear-cut science. There are some key themes, however, that do explain the disparity. These themes aren’t likely to shift soon.
Chief among them is the ongoing demise of Sears Holdings Corp (NASDAQ:SHLD), which is arguably a more direct competitor to JCPenney than Macy’s or Nordstrom. It’s been closing stores en masse for year now, and that effort hasn’t slowed any this year.
It’s not just the implosion of Sears that’s redirecting foot traffic to JCPenney though; consumer priorities are indeed shifting. In a relatively recent survey of millennials performed by the Harris Group, 72% claimed they would rather spend money on experiences than material items. Thing is, while millennials are setting that pace, other key demographics aren’t far behind with comparable mindsets. Such cultural tides take years to develop, and also take years to unwind.
At the same time, JCPenney may now benefit from its value-oriented history.
While it’s a distinction that may ring more familiar with older shoppers than it does with younger shoppers, Macy’s and Nordstrom are viewed at the higher-end of moderate-price shopping choices, whereas JCPenney is better linked with value for the cost-conscious consumer. That’s an important advantage in a lethargic economic environment like the one that’s plagued us for over a year now.
Yes, many of the statistics point to robust employment and income, suggesting consumers are flush with cash and ready to spend. They just aren’t doing so … at least not to the extent the economy is theoretically growing.
As it turns out, while the superficial stats look good, actual productivity — making goods and services we can sell — continues to dwindle. It has marginally improved since 2011, though production remains in a much bigger, multi-year downtrend. We’re just starting to feel the systemic effects of that shift from a manufacturing-oriented economy to a service-oriented one.
There’s no short-term solution to that shift, though. It’s a paradigm that will play right into JCPenney’s value message for a long while.
Looking Ahead for JCP Stock
At least some of any lingering uncertainties will be addressed on Friday. That’s when the JCPenney earnings figures for its third quarter of the year will be released.
As of the most recent look, analysts collectively expect JCP to post a loss of 21 cents per share on sales of $2.96 billion. Both are better than year-ago comparisons, though not equally. That loss would be less than half the 47 cents per share of JCP stock booked for the third quarter of 2015 (fiscal 2016), while sales would only be up 2.2% on a year-over-year basis.
That’s forward progress most other retailer’s would envy, though. Another beat — and another quarter of growth — on Friday could go miles in terms of defining JCPenney as one of the industry’s rare bright spots.
And just for the record, JCPenney hasn’t missed an earnings estimate since getting back on a growth track in 2014.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
