A few years ago, J C Penney Company Inc (NYSE:JCP) was effectively taken over by Pershing Square, a hedge fund managed by Bill Ackman. His goal was to completely remake the JCP experience. Regrettably, this strategy failed. After Ackman sold out, JCPenney was left swinging in the wind without any real plan. Then Amazon.com, Inc. (NASDAQ:AMZN) took over the world of retail, and JCP stock cratered even more amidst heavy competition.
JCP stock has been struggling for a while, but its recent earnings report showed a few steps forward. Let’s look at the numbers, and then look at the big picture.
The most important element for JCP stock this quarter was same-store sales, which rose 1.7%. Comps are the single biggest metric I look at as far as the health of any kind of retail company. It means that the company is either attracting more people to its stores and/or has pricing power. This 1.7% increase was an improvement over last year’s 0.8% decline. The other good news is that this wasn’t the massive single digit and double-digit comp declines JCP saw when it was at its worst.
Total sales fell 1.8% to $2.807 billion, and cost of goods increased 3.2% to $1.852 billion. However, SG&A fell 5.4% to $849 million. When we back out depreciation and restructuring costs, JCP stock had $93 million in EBIT, so it was operationally cash flow positive.
Backing out the $78 million in interest expense still leaves JCP stock with $15 million. The net loss including everything was $128 million, up from last years $67 million.
J.C. Penney ended the quarter with $185 million in cash and investments. Long term debt was paid down by almost half a billion dollars to $4.04 billion.
JCP Stock’s Plans Going Forward
So what is the company doing to elevate JCP stock price? The company’s mission statement is to “Help our customer find what she loves for less time, money, and effort.” Not a bad way to go, and I don’t ever recall JCP focusing exclusively on women.
JCP is taking on four merchandise initiatives. Building on the female demographic target, JCP launched the Fenty Beauty by Rihanna product, which is exclusive to Sephora stores and those inside JCP.
It has added Frigidaire kitchen appliances in 600 appliance showrooms and online. I’m not sure how successful this will be, considering the plethora of places to get appliances, but we’ll see.
It has expanded its mattress assortment, and these items are now in 500 stores. I love this angle, because these are high-margin products and often require financing.
I don’t really get why JCP is offering a partnership to offer LEGO building bricks and playsets in stores and online, though.
The online business is starting to grow nicely. Ship-from-store is now available at all stores. 30% of online orders were fulfilled in Q3, saving consumers time and making worker productivity better in-store.
There are a few other moves I really like. JCP is planning to grow its home install service programs, which are high-margin services. It is pushing a loyalty program, and also adding plus and tall sizes to inventory. It continues to enhance online capability.
When I wrote about JCP just a couple of weeks ago, JCP stock price was around $3.40. I said it had limited downside, and the stock fell as low as $2.36. It has since exploded back up to $3.17. I don’t see any long-term change here, so again, aggressive speculators may like JCP at these prices.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.