JCPenney (JCP) earnings come out next week, and in many ways it will be a make or break quarter for JCP stock.
That’s because JCP stock is up 10% in the last month, fueled by some early indications that the troubled retailer’s turnaround is on track. Any whiff of backsliding or bad news in JCPenney earnings will have JCP stock traders bailing out as fast as they can.
After all, JCP CEO Myron Ullman, who returned to the company to undo all the damage inflicted by Ron Johnson, may have the faith of the market … but only for the time being.
And JCP stock is still a long, long way from health. As the chart below shows, anyone holding JCP stock is still looking at a loss of 55% for the year-to-date:
Plunging sales and margins — and a sea of red ink on the JCPenney bottom line — are to blame. And by Wall Street’s reckoning, JCP will continue to post losses for some time.
JCPenney Earnings: There Aren’t Any
For the third quarter, the retailer is forecast to report a wider loss — $1.78 per share of JCP stock from a year-ago loss of 93 cents. For the full-year, JCPenney earnings should show a loss of $6.16, which would be much wider than last year’s loss of $3.50.
It should come as no surprise that the JCPenney earnings report will also come with ugly top-line numbers. JCP revenue is forecast to decline more than 4% in the current quarter, and by 7.5% for the full year.
Clearly the market is looking beyond the losses at some hopeful signs of recovery. As bad as revenue has been at JCP, the quarterly declines were indeed less severe for two consecutive quarters, and same-store sales improved (off a low base) over the last three months.
After dropping more than 16% in the first quarter, JCP sales fell by only 12% in Q2. In August same-store sales were off by 9.8%, but then by just 4% in September. And in October, JCPenney same-store sales actually ticked up by 0.9%
If JCPenney earnings report can show yet another quarter of improvement in stanching falling revenue, that would go a long way toward bolstering the bull’s case for a JCP stock turnaround. But even then, it might not be nearly enough, especially if JCP blows the bottom line again — a very real possibility. Prior to last quarter’s better-than-expected earnings, JCP missed on profits for six straight quarters.
Also not boding well for JCPenney earnings — or JCPenney stock, for that matter — was a bad third-quarter showing from rival Kohl’s (KSS). The company surprised the market with a profit and revenue miss, forcing it to slash guidance. That’s something JCPenney stock investors cannot afford.
After all, by some estimates, holiday sales growth will come in at a tepid 2%. If JCP earnings report doesn’t show marked improvement, well, the last thing the retailer needs is to lose what little momentum it has heading into the all-important holiday selling season.
As Kohl’s proved, the retail environment is difficult enough as it is. JCP stock investors don’t need the retailer to make it any harder on itself.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.