Is JCPenney Back in the Game?

J.C. Penney's first-quarter results came with surprises, but can the company compete with Macy's and Nordstrom while rebuilding?

May 20, 2014 at 3:20PM

J.C. Penney Company (NYSE:JCP) shares were up over 20% after-market Thursday following its first-quarter report. The retail chain suffered a rough patch after its new CEO attempted a total overhaul -- and was promptly fired. Undoing the overhaul has sent metrics on a wild ride, but the fourth-quarter report showed improvement. Did J.C. Penney's first-quarter results rival those of Macy's (NYSE:M) and Nordstrom (NYSE:JWN)

Jc Penney Store

Source: J.C. Penney.

Returned CEO Myron "Mike" Ullman had a tough job trying to undo the renovation efforts of short-term leader Ron Johnson. The process drove up inventory while slowing turnaround and eating margins. However, the company fought through and turned in holiday sales data that came in between the results of its competitors. 

Did the first quarter continue J.C. Penney's upward trend? 

Estimate beat 
Analysts expected J.C. Penney to post revenues of $2.7 billion and a loss per share of $1.25. The company reported $2.8 billion and a loss per share of $1.15.

Competitors Macy's and Nordstrom also reported their first-quarter results in the same week. Macy's reported $6.28 billion in revenue, which missed analysts' estimate of $6.47 billion, but met the earnings-per-share estimate of $0.60. Nordstrom met revenue expectations with $2.8 billion and exceeded the $0.68 EPS estimate with $0.72.  

Comparable-store sales
J.C. Penney reported comps growth of 6.2%. Macy's first-quarter comps were down nearly 2% and Nordstrom's were up over 3%. J.C. Penney reported its second consecutive quarter of comps growth. 

The first-quarter comps exceeded J.C. Penney's own expectations, but the year-over-year growth isn't as great as it looks at a glance. Comps in last year's quarter were down nearly 17%, so while the 6% improvement this year was great news, J.C. Penney still has some climbing to do before it posts strong comps without a weak comparison quarter.

However, J.C. Penney will soon change its method of comps calculation to make comps results more comparable year over year. In the first-quarter earnings release, the company stated that items such as sales return estimates and liquidation sales will no longer factor into comps calculations. If the new method had applied to the first quarter, the reported comps would've jumped over 7%.

Also, comps weren't the only metric improving for J.C. Penney in the first quarter. 

Gross margin improvement
J.C. Penney's gross margin was up 230 basis points year over year. However, the earnings release said that margins were negatively affected by an increase in clearance sales -- as a percentage of total sales -- in the months of February and March. Strength in April due to the shifted Easter holiday made up for those losses. 

The increased clearance sales matter because J.C. Penney has had inventory issues in the past year as Ullman undid Ron Johnson's renovations and brought back popular private brands. However, margins were still up for the quarter and shakiness was expected as the company finished up the second part of a three-part strategy that included a stabilization phase that started last spring and a rebuilding phase later in the year. 

Now J.C. Penney plans to move into the "go-forward" phase.

Go-forward guidance
The company's second-quarter guidance estimates a comps increase in the mid-single digits and a sequential gross margin improvement from the first quarter. For the full year, J.C. Penney expects comps to increase in the mid-single digits and gross margin to improve significantly over 2013. 

Foolish final thoughts 
J.C. Penney has turned in two quarters with better-than-expected results. It was risky to remove Ron Johnson midstream, but Mike Ullman seems to have returned the brands that customers desire while keeping promotions from completely swallowing margins. If the second-quarter report looks even rosier, count J.C. Penney officially back in the game.

Prefer to shop for your next multibagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Brandy Betz 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers