The past three years have been encouraging for J C Penney Company Inc (NYSE:JCP) shareholders. The retailer still is booking losses more often than not, but JCP was a bright spot in the space, improving the top and bottom lines even as its competitors saw both measures start to shrink a year ago. While it has been a back-and-forth battle the whole time, JCP stock is up 45% since hitting a multiyear low back in early 2014.
After last quarter’s results were posted on Friday morning, though, that standout performance was called into question, and JCP stock was punished as a result. For the first time in a long time, growth wasn’t achieved on any front.
Has JCPenney’s turnaround story gotten as good as it’s going to get?
JCPenney Earnings Wrap-Up
JCPenney lost 21 cents per share on $2.85 billion worth of revenue in its fiscal third quarter. Analysts were collectively expecting the struggling retailer to post a loss of 21 cents per share on sales of $2.96 billion. In the year-ago quarter, it lost 67 cents per share of JCP stock on a top line of $2.9 billion.
JCPhasn’t missed an earnings estimate since getting back on a growth track in 2014, though this is the first time it’s merely been met. Some analyst tallies, though, had called for a loss of 22 cents per share, which would translate into another beat.
Either way, same-store sales were down 0.8%.
JCPenney CEO Marvin Ellison commented on the results:
“We are pleased to see strong sales performance in the growth initiatives we discussed at our most recent analyst meeting. The results of these initiatives are reflected in a positive sales comp in the month of October, driven by over 200 basis points of comp benefit from our 500 new appliance showrooms. We view our October sales results — specifically our acceleration in the last two weeks of the month — and the benefit from appliances as examples of what we expect for the balance of the fourth quarter. Despite experiencing softness in apparel sales, we are continuing to improve the bottom line of our business thanks to the commitment and hard work of our over 100,000 Associates.”
Still on Track?
The numbers somewhat upended a relatively strong bullish case for owning JCP stock. Investors reacted by selling off to the tune of 9%.
The JCPenney saga has been a dramatic and sometimes strange one. While not in dire straits at the time, by mid-2011, it became clear to activist investor and major shareholder Bill Ackman — manager of the Pershing Square hedge funds — that some sort of change was needed to reignite growth.
That change was placing Ron Johnson at the helm as CEO.
Johnson wasn’t completely a fish out of water, bringing with him his experience at Target Corporation (NYSE:TGT). His most recent experience, however, was a mostly-misaligned tenure as chief of Apple Inc. (NASDAQ:AAPL) stores. The product base and customer base are hardly the same, and his effort to treat JCPenney stores like Apple stores didn’t jibe.
By early 2013, it was clear Johnson’s approach was not only not working, it was making things worse. He was asked to leave that year, but the damage was done — the company’s loss swelled to $6.10 per share that year.
Former CEO Myron “Mike” Ullman stepped back into his old role, charged with fixing what Johnson broke. He got that ball rolling too, handing the keys to now-former Home Depot Inc (NYSE:HD) executive Marvin Ellison in the middle of last year.
Ellison hit the ground running as well, but adding some key technology elements to the mix. Namely, he’s made a point of developing a detailed digital profile of each and every customer, and developing a more potent omnichannel presence.
Bottom Line for JCP Stock
The effort is mostly paying off, though the benefit of that work is less and less evident. The recently completed quarter is the first one that has indicated a notable slowdown in forward progress. It remains to be seen if this is the new norm, or just result of unfair expectations.
But JCP couldn’t afford to cast that shadow of doubt.
In the meantime, the retailer offered guidance for the current fiscal year. JCPenney anticipates a same-store sales improvement of between 1% and 2%, and it expects to drive $1 billion worth of EBITDA. EBITDA through the first three quarter totals up to $560 million, up from the total of $334 million that JCP had produced by this time last year. Free cash flow should be positive for the year, as should earnings.
JCPenney didn’t offer any specific expected earnings figure, but analysts are expecting the retailer to post a profit of 72 cents per share on revenue of $4.15 billion for the current quarter, which includes the all-important holiday shopping season. Both compare favorably to the 39 cents per share of JCP stock booked a year earlier, when revenue hit $4 billion.
For the coming year, which is fiscal 2018, the pros are looking for earnings of 77 cents per share on revenue of $13.21 billion. The profit line would roll in 450% better than this year’s profit of 14 cents per share, while that revenue tally would be 3% stronger than this year’s projected top line of $12.83 billion.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.