Why J.C. Penney Inc. (JCP) Is Down Today

NEW YORK (TheStreet) -- J.C. Penney  (JCP) declined by 4.3% to $8.30 on Tuesday as a lawsuit with Macy's (M) regarding Martha Stewart Living Omnimedia (MSO) continues. 

Stewart's company and Macy's announced Thursday they had settled a lawsuit in which Macy's accused Martha Stewart Living of violating their exclusivity agreement by selling products at J.C. Penney. Neither Macy's nor Martha Stewart Living released the terms of the settlement, but Macy's said the settlement wouldn't affect its ongoing lawsuit against J.C. Penney.

The tangle began in 2011 when Stewart made a deal with J.C. Penney to sell her home goods in the store, and the retailer agreed to acquire close to 17% of Martha Stewart Living. Stewart's company had already been selling products in Macy's for years at that point, so Macy's responded swiftly by suing both Martha Stewart Living and J.C. Penney.

J.C. Penney said in October that it would reduce the amount of Stewart's products featured in its stores, including beds, bath products and cookware, and also said it would sell its stake in Martha Stewart Living. A judge in New York permitted J.C. Penney to continue to sell Stewart's products under its "Everyday" designation that doesn't contain Stewart's name.

TheStreet Ratings team rates PENNEY (J C) CO as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about its recommendation:

"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.12 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PENNEY (J C) CO is currently lower than what is desirable, coming in at 29.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -17.59% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$737.00 million or 1502.17% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • PENNEY (J C) CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, PENNEY (J C) CO reported poor results of -$4.49 versus -$0.73 in the prior year. For the next year, the market is expecting a contraction of 35.2% in earnings (-$6.07 versus -$4.49).