J.C. Penney Just Bought Itself More Time

But that doesn't mean you should buy its turnaround.

May 16, 2014 at 9:03AM

J.C. Penney stock

J.C. Penney's better-than-expected quarter has some investors excited. Source: J.C. Penney.

J.C. Penney (NYSE:JCP) may have just bought itself more time, but it's not out of the woods yet.

To its credit, shares spiked more than 20% after the bell yesterday after the beleaguered retailer released encouraging first-quarter results. Of course, last year's dismal first quarter didn't exactly set a high bar, but same-store sales did grow by 6.2% -- better than J.C. Penney's expected 3% to 5% increase -- which helped quarterly sales rise 6% year over year to $2.8 billion.

Meanwhile, J.C. Penney's operating loss improved by 49.2% over last year to "just" $247 million, and its net loss came to $352 million, or $1.15 per share. Analysts, on average, were expecting an even wider loss of $1.25 per share on sales of $2.71 billion.

Liquidity crisis averted... for now
Gross margin also improved by 230 basis points to 33.1% over the same year-ago period, and is still expected to "improve significantly" over last year -- again, not a particularly difficult comparison. Combined with its stabilization in sales, though, J.C. Penney's free cash flow is now expected to be breakeven in 2014. Finally, liquidity is still expected to be in excess of $2 billion at year-end.

Then again, that's unsurprising when you consider J.C. Penney also announced that, sometime in the second quarter, it will close on a new $2.35 billion senior secured credit facility to replace its existing $1.85 billion bank line. J.C. Penney explained that the new facility extends the old April 2016 maturity by several years, is expected to provide better pricing terms, and should add $500 million of incremental liquidity to appease its seasonal needs. 

Also, if it isn't happening already, J.C. Penney should soon enjoy the positive effects of its strategic initiative announced in January to eliminate roughly 2,000 jobs by shuttering 33 locations. However difficult that decision was to make, we were bound to see some added improvement without that small, disproportionately underperforming group dragging down J.C. Penney's remaining store base.

What's an investor to do?
On the surface, there seems to be a lot to like about yesterday's report. But to be honest, I'm still struggling to put aside the fact that J.C. Penney is still losing boatloads of money.

Sure, it lost less on a per-share basis than last year. But only because it forced existing stockholders to endure significant dilution by selling 84 million new shares last September. With every passing quarter still tacking on hundreds of millions in fresh losses, J.C. Penney's $5 billion-plus debt pile only grows that much more unmanageable.

What's more, while J.C. Penney showed modest improvement this quarter, again it was pitted against the backdrop of last year's terrible Q1, which included $72 million in charges related to restructuring and the ouster of CEO Ron Johnson.

For now, J.C. Penney's progress just isn't significant enough to get me excited about the stock over the long term. It may well continue to narrow its losses from here, but J.C. Penney is still a far cry from achieving sustained profitability anytime soon.

Try these high-yielders on for size
Instead of hoping for a turnaround, why not put your money to work in something more solid? The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information