Chris Lau, Kapitall: Are these turnaround retail stocks Cinderellas or ugly sisters?
Retailers have been poor performers recently, but when J. C. Penny (JCP) reported better than expected revenue, the stock rose 16 percent that day. Should investors be bullish on J. C. Penny again?
J. C. Penny reported a quarterly loss of $1.16 per share in Q1 on revenue of $2.8 billion. The battered retailer beat consensus estimates by $0.10 per share and $90 million, respectively. The stock’s change in price is flat for the month. Since shares are underperforming for the year, it potentially has more ground to regain.
The turnaround in J. C. Penny could mean the stock will reach and hold the double digits (it closed recently at just below $10). Costs are going down, while online sales are improving. Having reported weak results in the past, it will now be easier for the firm to report improving numbers. More importantly, comparable store sales growth is up for the second quarter in a row. J. C. Penny reported higher sales, up 6.2% in the quarter, thanks to re-merchandising, a resonating marketing message, and key promotional events. The successful turnaround in J. C. Penny is bad news for competitors. Macy’s ( M) and Sears Holdings (SHLD) stand to lose as J. C. Penny improves its operations. Macy’s reported a comparable-store sales decline of 1.6 percent in Q1. Gross margin was mostly unchanged at 38.9%. The firm said it would repurchase up to $1.5 billion shares. Sears Holdings is looking to close poorly performing stores, and it also wants to unload Sears Canada. Target (TGT) is reportedly looking to unload its Canadian division as well. Target lost billions when it opened stores in Canada. Bottom Line Retailers underperformed recently, but J.C. Penny looks like a true turnaround story. Conversely, Sears is under pressure to sell real estate and close stores.