J.C. Penney (JCP) Stock Down as Class Action Lawsuit Over False Sales Certified by Judge

NEW YORK (TheStreet) -- Shares of J.C. Penney  (JCP) are down by 0.29% to $8.52 in late afternoon trading on Tuesday, after yesterday's decision by a federal judge in Los Angeles, who certified a class action lawsuit against the company. The suit accuses the retailer of hiking up prices on apparel and accessories in order to fool consumers into believing they were getting good deals when the items went on sale, Reuters reports.

The complaint against the retail giant says that the company has been operating a "massive, years-long pervasive campaign" designed to device its shoppers regarding the pricing of private and outside label brands.

The lawsuit's lead plaintiff said she realized what J.C. Penney was up to after buying three shirts for $17.99 each, a 40% discount from the items' "original" $30 price, she would later learn that the price of the clothes was never above $17.99 in the prior three months, Reuters added.

Retailers are supposed to sell items at original prices for a "reasonable" period of time before placing them on sale, Reuters reports the FTC as saying.

By allowing shoppers to sue as a group they could receive great compensation at lower cost to the company.

Similar lawsuits have been brought against Kohl's (KSS) and the Jos. A Bank unit of Men's Wearhouse (MW), Reuters noted.

Separately, 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 their recommendation:

"We rate PENNEY (J C) CO (JCP) a SELL. This is driven by several 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 generally high debt management risk and generally disappointing historical performance in the stock itself."

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

  • The debt-to-equity ratio is very high at 3.05 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • JCP has underperformed the S&P 500 Index, declining 6.63% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength 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.
  • Net operating cash flow has increased to -$226.00 million or 16.60% when compared to the same quarter last year. Despite an increase in cash flow, PENNEY (J C) CO's cash flow growth rate is still lower than the industry average growth rate of 30.18%.
  • 36.44% is the gross profit margin for PENNEY (J C) CO which we consider to be strong. It has increased from the same quarter the previous year.
  • You can view the full analysis from the report here: JCP Ratings Report

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