J.C. Penney Is a Shopping Fool

On Thursday, department store retailer J.C. Penney (NYSE: JCP  ) posted another quarter of respectable sales and impressive earnings gains. Better yet, Penney's could just be getting warmed up: It recently announced ambitious long-term goals.

Total sales growth has averaged only a couple of percent over the past three years at Penney's, but it might be picking up, finally. Total sales advanced 4.4% during the first quarter, while same-store sales improved 2.2%. And last month, management announced plans aimed at annual total department store sales growth in the mid- to high-single digits over the next five years. This will include 250 new stores, as well as relocations and improvements in existing locations.

Diluted earnings jumped 16.9% during the first quarter, and management is calling for 16% earnings growth from 2008 to 2011. In other words, Penney's is planning to leverage a lower level of top-line growth into a much higher level of profits. This is indeed impressive, and the company has quite a bit of credibility, because a restructuring plan begun in 2000 has been paying off handsomely for more than four years now.  

The first phases of the turnaround consisted mostly of cutting costs and sprucing up the stores by offering a better atmosphere and more attractive merchandise mix. These moves appear to now be part of the corporate culture; the press release from Thursday mentioned a continued move to higher-margin private-label brands, new brand lines from Liz Claiborne (NYSE: LIZ  ) and Chip & Pepper Productions, and better inventory management.

Capital spending has definitely increased as the company opens new stores and revitalizes existing ones. Penney's also has a higher percentage of debt to total capitalization compared with peers such as Sears Holdings (Nasdaq: SHLD  ) , Bon-Ton Stores (Nasdaq: BONT  ) , and Federated Department Stores (NYSE: FD  ) , owner of the venerable Macy's stores.

However, based on forward expectations, Penney's is trading at a reasonable 15 times earnings, which is among the lowest of the peer group. It also pays a 1.1% dividend yield and has been aggressively buying back shares. Throw in a projected 16% increase in annual earnings over the next few years, and J.C. Penney could beat Target (NYSE: TGT  ) and Wal-Mart (NYSE: WMT  ) -- two retailers that had grown accustomed to beating up on the old-line chains. Not any longer, it appears.               

For related Foolishness:

Wal-Mart is anInside Value pick. See what other undervalued top-shelf stocks the newsletter has recommended with a free 30-day trial.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.


Read/Post Comments (0) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 528130, ~/Articles/ArticleHandler.aspx, 8/27/2014 5:14:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement