"Good house, bad neighborhood," sums up JCPenney (JCP - commentary - Cramer's Take) at the moment, as the company is doing an admirable job navigating an extremely difficult retail environment.
The company reported a modest upside surprise, posting EPS of 54 cents vs. the 50 cents estimate on revenue that declined 5% year over year, to $4.13 billion. Management guided in line for the upcoming quarter (EPS of 38 cents vs. the Street's 37 cents), expecting sales down 2% to 3% and comps down around 5%. So far, May is on trend with this guidance.
As much as analysts wanted management to give them a ray of hope, management would not relent in their grim assessment of the current environment. Comps for the quarter were down 7.4%, with a "significant incremental slowdown in consumer spending," and the stimulus package is not expected to impact results. In fact, management went through an analysis of where that money has already gone: food, gas, debt paydown, etc. The company surmises that perhaps 30% of the rebates would be available to its retail category, and of course, that will be shared with Kohl's (KSS - commentary - Cramer's Take), Sears (SHPD - commentary - Cramer's Take), etc. Interestingly, "appointment" shopping -- that is, for holidays such as Mother's Day -- has held up well, but the dead times between holidays are when traffic and sales really weaken.
To its credit, the company has managed inventory quite well, keeping it in line with the slowdown in sales. Overall inventory dollars were up but against the addition of 54 stores. Management expects comp inventory to be down this quarter and full chain inventory to be down by the end of back-to-school. JCPenney benefits from the inventory control initiatives it put in place over the last couple years. The higher frequency of delivery and fast refresh time on products enables the company to quickly adjust down quantities ordered and shift to more basics that are popular right now.
Retail URBN Preview: Getting Involved 5/14/2008 4:26 PM EDT Analysts expect the company to earn 23 cents per share on net sales of $392.2 million.
At the time of publication, Dvorchak had no positions in the stocks mentioned, although positions can change at any time.
Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.
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