J. C. Penney operates department stores in the United States and Puerto Rico. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, and home furnishings. The Plano, TX-based company also provides various services, such as styling salons, optical, portrait photography, and custom decorating. The company offers various products and services online via its website, a platform that has been the nursery for industry giants like Amazon (AMZN) and eBay (EBAY). Its direct rivals include Kohl's (KSS) and Macy's (M), among others.
J.C Penney's most recent quarter results least impressive among peers
The company announced December quarter results on Wednesday, ...view middle of the document...
Target has done well with its specialization in clothing and apparel. The company has managed to confront the ghost of competitive pricing from Amazon, which puts it in a position to attract budget customers. For the most recent quarter ended Feb. 2, Target earned $961 million, or $1.47 per share, down from $981 million, or $1.45 per share, reported last year. Revenue increased by 7 percent to $22.73 billion from $21.29 billion, a year ago, which was in line with street expectations. Target full year earnings came at $3 billion, or $4.52 per share compared to 2011's $2.93 billion, or $4.28 per share. Adjusted earnings were $4.76 per share. The company's annual revenue was up 5 percent to $71.96 billion from $68.47 billion.
Menominee Falls, WI-based Kohl's reported earnings on February 28, beating analyst estimates. The company reported revenue of $6.34 billion, in line with the consensus estimate. The company's GAAP sales were up 5.4 percent from last year while earnings came at $1.66 per share- 4 cents above the consensus estimate. Nonetheless, this was a decline from last year's EPS of $1.80. Operating and gross margins (GM) also dipped significantly, with GM shedding 290 basis points to settle at 33 percent while operating margin was down 260 Bps to 10.8 percent. Just like J.C Penney, Kohl also provides on-line shopping through its website, Kohls.com.
This turnaround is becoming a mirage
Every other quarter, there has been a strong message from J.C Penny, insinuating optimism for a turnaround. So far, this has been fruitless, and the company has resolved to selling products at a loss in desperation to remaining liquid. J.C Penney has been bleeding cash over the recent past, a situation that has also forced the company to employ some delaying tactics in paying vendors. The concept here is getting as much cash as possible within the shortest period, while taking as long as possible to make payments.
The company is indeed trying to work on its cash cycle, albeit without major success. Ron Johnson may need to borrow some knowledge from his previous success with Target, in order to mitigate J.C Penney's woes. The CEO has about six months to weave a solution, which could spark J.C Penney's miraculous recovery from its death bed.
However, just as revealed, J.C Penney faces more than the internal challenges of margins and costs. The company's industry is facing the challenge of a lifetime, with retailers being forced to discount their products in order to compete with the likes of Amazon and eBay. The challenge from Kohl's, Macy's and Target, is not to be ignored either while Wal-Mart (WMT) continues to maintain its status as the market leader outside the cyberspace.
The bottom line
J.C Penney can draw a sigh of relief from analysts who continue to rate its stock as Buy or equivalent. The company's best price target over the last three weeks came from Oppenheimer, who reiterated the Outperform rating with a target of $30 on February 28. The...