JCPenney (JCP) may not yet be where it wants to ultimately be as a company, but at least it’s not where it was — on the verge of complete collapse.
Don’t get the wrong idea. Although the iconic retailer is doing much better than it was two years ago and has topped earnings estimates six times in the past seven quarters, it’s still booking regular losses, and it’s slowly burning through cash. If it needed to raise funds, there’s no assurance it could issue JCP stock or issue debt on attractive terms.
All the same, hope abounds, which makes Friday’s JCPenney earnings news a potential make-or-break report for the company.
JCPenney Earnings Outlook
As of the latest look, analysts collectively expected JCPenney to report a loss of 56 cents per share on revenue of $2.87 billion for its third quarter of 2015, which ended at the beginning of November. Both are improvements on the year-ago loss of 77 cents per share and top line of $2.76 billion.
If JCPenney meets or exceed those targets — which JCP announced Wednesday that it was likely to report same-store sales growth of 6.4% for its third quarter — it will be the eighth consecutive quarter measurable improvement, largely validating the work Myron “Mike” Ullman began in April of 2013 when he retook the helm at JCPenney. A solid quarter will also be a credibility victory (albeit a minor one) for current CEO Marvin Ellison, who replaced Ullman in early August.
Long-term owners of JCP stock know all too well the company is still digging its way out of a disastrous hole dug by former CEO Ron Johnson between November of 2011 and April of 2013, when he was in charge.
Making drastic and untested changes that not only burned cash but alienated the company’s loyal customers, some feared Johnson’s reckless branding of the old-school retailer as a modern chic/trendy venue damaged the company beyond repair.
Looking back, it’s easy to see the company isn’t beyond salvaging, but it remains to be seen exactly when the organization may turn the tide of reliable profits.
Friday’s news may provide an answer for nervous investors.
3 Things for JCP Stock Holders to Mull
At this point the earnings numbers themselves matter more than the underlying story for owners of JCPenney shares; it wasn’t that way just three years ago, when the market was looking for evidence that anybody even had a clue as to how to turn the ship around.
But, many of the subjective themes still sway the market’s opinion regarding JCP stock.
With that as the backdrop, there are three specific hot buttons that could significantly work for or against shares on Friday.
- Omnichannel: At the same time JCPenney is getting back to its old-school retailing roots, it’s also finally getting serious about e-commerce, the effective use of technology in the handling of inventory replenishment and pricing, as well as the integration of that technology in stores. This has been an area that was severely lacking from JCP. Though VP of Oracle and Corporate Solutions Raj Lakshmaihgari still has plenty of work to do on that front, that fact that he was put into that highly defined role at all speaks volumes about how serious JCPenney is about modernizing its IT and e-commerce systems.
- Pension Plan Challenges: In October, the retailer announced it was cutting part of its pension plan obligation by offering a lump-sum payment to those receiving pension payments. Though it remains to be seen to what effect that offer helped relieve JCP from some of that burden, it’s worth watching in the future as it may resurface as a problem again in the future.
- Customer Information: In some ways this is an extension of its omnichannel efforts, but in more ways it isn’t. JCPenney has a great deal of information about a great number of its customers … it just doesn’t do anything with it. As was rhetorically asked earlier in the month by The American Genius, “could JCPenney save itself by tapping into their mountains of data they’ve ignored?” Things are changing on this front though. In October, Marvin Ellison said:
“Our marketing has to be more specialized. Part of the effort to get more customers to spend more with us will require more focused messages.”
Bottom Line for JCP Stock
Despite a measurable sales and earnings growth streak that’s now two years old, the fact that JCP stock is priced right where it was two years ago — and still down 80% since 2012’s high says investors have yet to really believe the retailer can ever become viable again.
There’s no real assurance that another good showing for Q3 would pull JCP stock out of that funk either. It increasingly looks like the plausible promise of profits is the only thing that’s going to push JCP stock out of its rut.
That, however, could take a while. A time frame that will be lengthened by a shortcoming on earnings Friday.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
