JCPenney (JCP) earnings are due Thursday after the close of trading. JCP stock is up 64% since announcing positive Q4 2013 earnings Feb. 26. In order to keep the momentum going, it will need to deliver more good news in its Q1 report.
Core retail sales in general have been a mixed bag so far in fiscal 2014. They were up 0.3% in February, up a robust 1.3% in March and down 0.1% in April. More importantly, department stores as a group experienced a 0.3% year-over-year decline in April sales. It’s clear that consumers are obviously still skittish about spending and took a breather this past month after going relatively wild in March.
Investors shouldn’t expect much good or bad from JCP earnings. Chances are it will be a non-event providing little in the way of a catalyst for JCP stock in either direction. Here’s why:
Q1 JCPenney Earnings Preview
The consensus estimate for revenue is $2.71 billion along with a $1.25 loss per share. Assuming it meets or exceeds both estimates, JCP will have improved its business on both the top and bottom line. Analysts from Citigroup (C) believe it can deliver positive same-store sales growth in Q1 between 3% and 5% and mid-single digits for all of 2014. With department store sales generally weak, I’m a bit skeptical about this prediction.
That said, the current quarter is working against some pretty weak numbers — Q1 2013 saw total sales decline 16.4% and same-store sales 16.6% — making the comparison that much easier. If it hits Citigroup’s estimate, investorsshorting JCP stock (30% short interest) surely won’t be happy.
JCPenney Earnings — First Thing to Look For
Profits and losses are meaningless without cash. Without liquidity, there is no business. When Mike Ullman took back the reigns of JCP in April 2013, the business had lost 30% of its sales and was hemorrhaging cash. Fast forward a year and Ullman has managed to right the ship. Its liquidity at the end of the fiscal year stood at more than $2 billion — well in excess of the $1 billion needed to keep the lights on. It’s unlikely that this number will have changed much in what’s usually considered the slowest quarter of the retail year. Nonetheless, it’s important to keep an eye on it.