Will J.C. Penney Bring Holiday Cheer…or Coal?

J.C. Penney (NYSE: JCP  ) has been one of the most volatile stocks throughout the broader market. Over the past year, the stock has depreciated 48%, yet over the past month, it has appreciated 10.5%. These types of violent swings are often seen when investors aren't sure whether or not a company is capable of a successful turnaround.

While J.C. Penney's stock has been all over the map, Macy's (NYSE: M  ) has consistently rewarded its shareholders, showing stock appreciation of 36.9% in the past year and 11.8% in the past month. Kohl's (NYSE: KSS  ) hasn't been quite as consistent, showing stock appreciation of 29.6% in the past year.

The point here is that J.C. Penney is likely to see more volatility than its peers, and if you choose to get involved, then you need to be prepared. While all investment decisions should be made based on your own due diligence, the information below might present some important information.

Holiday update
J.C. Penney recently reported a 10.1% jump in its November comps. Your first reaction might be excitement, but you have to look beyond the numbers sometimes. Keep in mind that this comps improvement is being compared to a time when Ron Johnson ran the show. This was a time when J.C. Penney represented more of a desolate wasteland than a thriving department store. That's not the only factor to consider when looking at this comps number.

If comps improved so much, how do you think this happened considering all of the competition throughout the retail world? If you guessed promotions, then you're correct. If a company offers many promotions, then margins contract, which leads to lower profitability. Considering investors are most concerned about J.C. Penney's profitability, this is a potential negative. Also consider that revenue hasn't been outpacing SG&A expenses in the past year:

JCP SG&A Expense (TTM) Chart

J.C. Penney SG&A expense (trailing-12 months) data by YCharts

On the other hand, if you're looking at this from an optimistic perspective, perhaps CEO Mike Ullman is leading the company in the right direction. While the chart below still isn't likely to excite investors, it at least offers hope. Revenue versus SG&A expenses for the past six months:

JCP SG&A Expense (TTM) Chart

J.C. Penney SG&A expense (trailing-12 months) data by YCharts

Ullman has stressed that investors, analysts, and consumers visit jcp.com for a better idea of what J.C. Penney is offering. I took that advice. Here is what I found.

Online offerings and performance
The company's website is littered with promotional offerings, including an extra 25% off $200 or more, an extra 20% off $100 or more, and an extra 10% off furniture, mattresses, fine jewelry, and more. These offerings end Dec. 7, but if you miss the deadline, don't worry...similar offerings are likely in the near future.

The homepage also offered deals of 30%-50% off select outerwear, 20%-50% off select fine jewelry, 40%-50% off select a.n.a apparel, 40%-50% off The Foundry Big & Tall Supply Company (select items), 40% off curtains and drapes, free shipping to stores on purchases of $25 or more, and free shipping to homes on purchases of $99 or more. 

I list all of these promotions because it's more proof that while sales are likely to increase, margins might take a further hit.

Ullman stated that the company was performing well online, so I visited Alexa.com (global leader in website analytics) to check out the website's recent performance.

Jcp.com sports a global traffic ranking of 1,217, and a domestic traffic ranking of 225. For most companies, these are good numbers, but not for a company like J.C. Penney. For instance, Macys.com has a global traffic ranking of 548 and a domestic traffic ranking of 102. Kohls.com is also more impressive, with a global traffic ranking of 670 and a domestic traffic ranking of 98.

In regards to performance, jcp.com has seen its bounce rate (a visitor looks at one page and leaves, indicating disinterest) increase 15% to 24.2% over the past three months. While the direction is a negative, 24.2% is very low for a bounce rate, which is a positive. Kohls.com has a similar bounce rate of 24.1%, and Macys.com is slightly higher at 27%.

The separation in online performance for these three companies comes in the way of page-views. Over the past three months, jcp.com's page views per user has slid by 8.6% to 7.8, whereas Macys.com's page views per user has increased 3.5% to 5.9, and Kohls.com's page views per user has improved 12.6% to 9.8. Clearly, Kohl's is doing something right online.

In addition to offering more consistent stock appreciation and more online exposure, Macy's and Kohl's also offer dividend yields. Currently, Macy's yields 2%, and Kohl's yields 2.5%.

Gifts or coal
I cannot predict whether or not J.C. Penney will see a successful turnaround. On top of this,predicting how the stock will perform by Christmas would be a pure guess at best. What I do know is that J.C. Penney is facing many more headwinds than its peers, and that bottom-line improvements are going to be difficult to achieve in the near term. 

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