J.C. Penney (JCP) Surges on Thursday, But Down Over Week

NEW YORK (TheStreet) -- What a rollercoaster of a week J.C. Penney (JCP) has had and it's not even Friday. The retailer spiked 8.2% to $5.65 by midafternoon Thursday, buoyed by a Kohl's-led (KSS) retailer rally and as the S&P 500 added 1.11% on jobless claims.

Even so, the retailer is down 4.5% for the week, after dumping nearly 11% in Tuesday's session.

Earlier in the week, the Plano, Texas-based business posted a financial update which should have pleased Wall Street with its indication of a turnaround gaining momentum.

The company said combined comparable-store sales over November and December, the critically-important holiday season, were up 3.1% over the same period last year. For the full quarter, comps rose around 2%, the first positive quarterly sales result since the second quarter 2011.

For the fourth quarter, J.C. Penny's e-commerce sales jumped 26.3% over the year-ago quarter.

Additionally, the company closed fiscal 2013 with total available liquidity in excess of $2 billion.

"Steady improvements in our business show that the Company's turnaround is on track. In spite of the significant headwinds facing all retailers this season, including unprecedented harsh weather conditions in many parts of the country, we delivered on our promise to generate positive comparable store sales growth in the fourth quarter," said CEO Mike Ullman in a statement.

On Thursday, management said it had entered into a partnership to develop J.C. Penney-owned plots of vacant land near its Texan headquarters. The land, totaling 240 acres, is considered a prime location for office development.

"We have seen a great deal of business and residential growth around the home office over the last 25 years, and now is the time to capitalize on this attractive asset," said Katheryn Burchett, SVP of real estate at J.C. Penney, in a statement.

Contributing to investor appetite for retail stocks Thursday, department store chain Kohl's Corporation popped 3.7% to $51.65 after issuing better-than-expected comparable-store sales. Wisconsin-based Kohl's said comparable-store sales fell 2% over the three months to January, a result of lower traffic and wintry weather last month. Combined November and December comparable sales gained 0.8%.

Sears Holdings (SHLD) also benefited from the retail rally, climbing 3.8% to $35.66. From November to Jan. 6, its namesake stores saw same-store sales drop 9.2%, while Kmart experienced a 5.7% fall.

Analyst firm UBS recently decreased its price target for J.C. Penney to $4 from $5 and reiterated its "sell" rating.

The analysts wrote, "We believe JCP's recent decision to close 33 stores highlights the company's efforts to minimize cash burn and downsize to a smaller, more profitable store base. If JCP's SSS cannot accelerate to a +MSD range (or better) we have concerns that there could be downside to our '14 sales, GM, EBITDA and FCF estimates."

J.C. Penney will report fourth-quarter and full-year results after the bell on Feb. 26.

Must read: J.C. Penney Is No Bargain as Volume Soars and Shares Plunge

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

"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by a number of negative factors, 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 35.4% in earnings (-$6.08 versus -$4.49).

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