Weeks before J.C. Penny (
) shares dropped, analysts reduced their outlook in the company.
Morgan Stanley (MS)
cut its earnings estimates for the fourth quarter to negative $0.54 per share, and fiscal 2015 earnings from $1.75 to just $0.30. Credit Suisse rated the company as an “underperform.” Shares raced as high as $22, as cost cuts of 300 jobs were revealed on February 22.
Things quickly turned south after the company reported quarterly results that missed estimates. In the fourth quarter, earnings dropped to -$0.24 per share, missing estimates by $0.06. Revenue missed estimates by $200 million, coming in at $3.884B. In the quarterly earnings video call, the company provided no guidance for this quarter, adding to more uncertainty.
Two negative points to highlight are: online sales declined 34%, while comparable store sales dropped 31.7%.
Volatility for options was high, ranging from the 60’s to 91.2%:
J.C. Penny closed the quarterly with cash levels below its target $1 billion. Investors should expect cash balances to decline in the current quarter.
Analysis and Conclusions
The retail environment is no doubt getting tougher.
experienced weak February sales, but J.C. Penny is need of fundamental change. Unlike other retailers in the midst of a turnaround, like
Best Buy (BBY),
J.C. Penny has yet to find a formula that will reverse declining sales. Electronics retailer Best Buy illustrates the reversal does not need to be drastic. The retailer combatted competition from online stores by making price-matching permanent. This improved sales, but Best Buy can build a base from there. Consumers must take the initiative to obtain a price-match. Best Buy could proactively introduce traffic-generating products that are competitively-priced to begin with. J.C. Penny may have a leadership problem, because the CEO’s turnaround strategy is not working. Speculation that the company will find new leadership could help reverse the decline in shares.
Written by Chris Lau