J.C. Penney's Holiday Sales Were Not Good Enough

The top of a recent press release from beleaguered retailer J.C. Penney (NYSE: JCP  ) reads "Turnaround Remains on Track." The purpose of the release was to announce the first positive quarterly same-store sales growth since 2011, with the metric rising by 2% in the company's fourth quarter. During pre-market trading following the release, the stock initially rose on the apparent good news. But this rise didn't last, and the stock tanked during the trading day. J.C. Penney's results weren't nearly good enough, and the turnaround is far from on track. The company is left with few options, and a wave of store closings like the one recently announced by RadioShack (NYSE: RSH  ) may be inevitable.

Putting J.C. Penney's sales into perspective
J.C. Penney's sales completely collapsed during the tenure of former CEO Ron Johnson. This left the company with a cost structure built for $17 billion in annual sales, while actual sales had fallen below $13 billion per year.

The fourth quarter of fiscal 2012 was a complete disaster. Not only did same-store sales decline by a staggering 31.7%, online sales also fell by 34.4%. These numbers should help put the results from the fourth quarter of 2013 into perspective. A 2% rise following a 30%-plus decline is not a recovery. In fact, it's barely noticeable.

After declining 31.7% in the fourth quarter of 2012, the 2% same-store sales increase in the fourth quarter of 2013 is almost meaningless relative to that decline. J.C. Penney needs to increase same-store sales by about 46% from Q4 2012 levels in order to get back to Q4 2011 levels. And while the 26.3% increase in online sales during the fourth quarter might seem impressive, the massive decline last year means that online sales have not yet recovered to 2011 levels.

Time is running out
We won't see an update on J.C. Penney's balance sheet until the company reports earnings later this month, but the situation will likely be increasingly grim. The company likes to tout the amount of liquidity that it has available, with more than $2 billion at the end of the fourth quarter, but at the current rate of cash burn, this won't last long.

Having failed to meaningfully increase sales, J.C. Penney likely has no other option than to start closing many of its stores. A similar move was recently announced by fellow troubled retailer RadioShack after its turnaround efforts floundered, and J.C. Penney may be forced to follow suit.

While J.C. Penney and RadioShack took different paths to arrive at this point, both companies have largely become irrelevant to consumers. There's nothing special about either brand, and with both companies hemorrhaging money, it was only a matter of time before drastic measures became inevitable. RadioShack has finally realized that it needs to greatly reduce its store count, and the company plans to close about 11% of its stores, or about 500 out of a total of 4,500, over the next few months. While RadioShack's Super Bowl ad suggested that the company is trying to modernize, this is the same story that we've been hearing for the last couple of years.

I suspect that J.C. Penney will be following the same route as it contends with inevitable liquidity issues in the coming year or two. At its current size, there's very little chance that J.C. Penney can return to profitability before it runs out of money.

The bottom line
J.C. Penney barely improved upon its dismal performance during the 2012 holiday season in terms of sales, and the company offered no information on its margins during the period. With heavy discounting affecting other retailers, it's possible that J.C. Penney actually did worse this year in terms of profitability compared to last year. While management can claim that the turnaround is on track, reality seems to disagree.

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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.

  • Report this Comment On February 09, 2014, at 4:14 PM, abeatle32 wrote:

    another Motley Tool article relentlessly bashing a stock.

  • Report this Comment On February 09, 2014, at 4:47 PM, thethreestooges wrote:

    Timothy Green admitted that he has no position in any stocks mentioned. He is probably paid by shorts @ 10 cents per bashing post to make a living.

  • Report this Comment On February 09, 2014, at 5:50 PM, longjcptoppick wrote:

    THIS MOTLEYS FOOLS IS AN IDIOT. PAID OFF TO BASH. IGNOR THIS IDIOT..

  • Report this Comment On February 09, 2014, at 5:52 PM, longjcptoppick wrote:

    all this motleys fool dummy does is bash.. never ever says anything good.. seems that bill awkman pays him a lot to bash.. I AM BULLISH JCP. .. AND SEE IT PASSING MACY.. and JCP WILL HAVE BLOWOUT QTR.. COMING be long should be $22.50 beating est jcp...

  • Report this Comment On February 09, 2014, at 5:52 PM, longjcptoppick wrote:

    BIGGEST TURNAROUND IN HISTORY JCP having.. and is on track for best from here.. as of now shorts have jcp as if it is missing but if it don't should go double digits jcp.. also my top pick JCP

  • Report this Comment On February 09, 2014, at 6:30 PM, shoe4man wrote:

    If retail stores don't bring back salesclerks to help you more than JCP will go under!! Retail today sucks big time no help, no checkout registers and most stores are unorganized. I worked 38 yrs in retail same business and WE gave service now retired and the business sold and they still give Service!!

  • Report this Comment On February 09, 2014, at 8:37 PM, longjcptoppick wrote:

    J.C. Penney Co. (NYSE:JCP) was upgraded by investment analysts at Piper Jaffray from a “neutral” rating to an “overweight” rating in a note issued to investors on Thursday, TheFlyOnTheWall.com reports. The firm currently has a $11.00 price objective on the stock. Piper Jaffray’s target price points to a potential upside of 49.25% from the stock’s previous close.

    The analysts wrote, “We believe the real message in yesterday’s release is being missed: JCP is doing what they said they would do, and we believe any retailer reiterating their guidance following this compressed, promotional, mall-traffic-starved holiday season is a winner in our book”

    Several other analysts have also recently commented on the stock. Analysts at Wells Fargo & Co. reiterated an “underperform” rating on shares of J.C. Penney Co. in a research note to investors on Wednesday. Separately, analysts at Zacks reiterated a “neutral” rating on shares of J.C. Penney Co. in a research note to investors on Friday, December 20th. They now have a $8.35 price target on the stock. Finally, analysts at Goldman Sachs Group Inc. cut their price target on shares of J.C. Penney Co. to $9.50 in a research note to investors on Thursday, December 19th. Eight analysts have rated the stock with a sell rating, thirteen have issued a hold rating and four have given a buy rating to the company’s stock. The company presently has an average rating of “Hold” and an average price target of $10.89.

    Shares of J.C. Penney Co. (NYSE:JCP) traded up 4.55% on Thursday, hitting $7.705. 23,348,130 shares of the company’s stock traded hands. J.C. Penney Co. has a 52 week low of $6.24 and a 52 week high of $23.10. The stock has a 50-day moving average of $8.86 and a 200-day moving average of $11.37. The company’s market cap is $2.347 billion. J.C. Penney Co. also saw some unusual options trading activity on Tuesday. Stock investors purchased 56,731 call options on the company. This is an increase of 145% compared to the typical volume of 23,172 call options.

    J.C. Penney Co. (NYSE:JCP) last issued its quarterly earnings data on Wednesday, November 20th. The company reported ($1.81) earnings per share for the quarter, missing the analysts’ consensus estimate of ($1.72) by $0.09. The company had revenue of $2.78 billion for the quarter, compared to the consensus estimate of $2.80 billion.

  • Report this Comment On February 09, 2014, at 8:38 PM, longjcptoppick wrote:

    JCP will have blowout est. shorts have to cover before est... knowing jcp will beat est and crush the bashers..

  • Report this Comment On February 09, 2014, at 8:38 PM, longjcptoppick wrote:

    J.C. Penney Co. (NYSE:JCP) was upgraded by investment analysts at Piper Jaffray from a “neutral” rating to an “overweight” rating in a note issued to investors on Thursday, TheFlyOnTheWall.com reports. The firm currently has a $11.00 price objective on the stock. Piper Jaffray’s target price points to a potential upside of 49.25% from the stock’s previous close.

    The analysts wrote, “We believe the real message in yesterday’s release is being missed: JCP is doing what they said they would do, and we believe any retailer reiterating their guidance following this compressed, promotional, mall-traffic-starved holiday season is a winner in our book”

    Several other analysts have also recently commented on the stock. Analysts at Wells Fargo & Co. reiterated an “underperform” rating on shares of J.C. Penney Co. in a research note to investors on Wednesday. Separately, analysts at Zacks reiterated a “neutral” rating on shares of J.C. Penney Co. in a research note to investors on Friday, December 20th. They now have a $8.35 price target on the stock. Finally, analysts at Goldman Sachs Group Inc. cut their price target on shares of J.C. Penney Co. to $9.50 in a research note to investors on Thursday, December 19th. Eight analysts have rated the stock with a sell rating, thirteen have issued a hold rating and four have given a buy rating to the company’s stock. The company presently has an average rating of “Hold” and an average price target of $10.89.

    Shares of J.C. Penney Co. (NYSE:JCP) traded up 4.55% on Thursday, hitting $7.705. 23,348,130 shares of the company’s stock traded hands. J.C. Penney Co. has a 52 week low of $6.24 and a 52 week high of $23.10. The stock has a 50-day moving average of $8.86 and a 200-day moving average of $11.37. The company’s market cap is $2.347 billion. J.C. Penney Co. also saw some unusual options trading activity on Tuesday. Stock investors purchased 56,731 call options on the company. This is an increase of 145% compared to the typical volume of 23,172 call options.

    J.C. Penney Co. (NYSE:JCP) last issued its quarterly earnings data on Wednesday, November 20th. The company reported ($1.81) earnings per share for the quarter, missing the analysts’ consensus estimate of ($1.72) by $0.09. The company had revenue of $2.78 billion for the quarter, compared to the consensus estimate of $2.80 billion

  • Report this Comment On February 10, 2014, at 12:32 AM, MFslanderingJCP wrote:

    More crap from motley fools. How funny...

  • Report this Comment On February 10, 2014, at 1:28 AM, Vanmusicblues wrote:

    A 2% sales increase in a year of 1.2% inflation and one more day of sales, Thanksgiving, equals about 1/2 % real sales growth. I forgot ; being open Thanksgiving added 10M in variable costs

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