J.C. Penney Schools the Competition

Department-store operator J.C. Penney (NYSE: JCP  ) continues to be a beacon of strength in an otherwise dour domestic retail environment. Today's earnings release was a fresh breath of air, given what certain archrivals are reporting, and Penney's is showing little sign that it's long-term recovery is wearing thin.

So far this week, Wal-Mart (NYSE: WMT  ) and Macy's (NYSE: M  ) detailed their difficulty in growing their top lines. Consumer spending is waning, squeezed by the likes of higher gasoline prices, food prices, interest rates, and subprime woes that are hitting home prices in many U.S. regions.

In stark contrast, consumers heading to Penney's are arriving with their wallets open. The company's seeing strong trends among nearly every operating metric. Total second-quarter sales advanced 3.6%, and same-store sales improved a respectable 1.9%; the company had already posted strong 6.6% comps in last year's quarter. The start of the back-to-school season shifted into the quarter, and management cited particular strength in the Northwest and Southwest regions.

J.C. Penney's private-label business is outgrowing other merchandise categories. Penney's new labels that are proving popular to consumers, include Ambrielle, Liz & Co., and CONCEPTS, in a successful relationship with Liz Claiborne (NYSE: LIZ  ) . Private-label business also allows Penney's to keep more of the profits, which helped boost gross margin nearly 6% for the quarter. Strong inventory management and other cost controls contributed to a 17.5% increase in operating income, even though a higher tax rate slowed diluted earnings growth to 6.6%.

Management expects single-digit sales and comps growth for the upcoming third quarter, and it increased its annual earnings projection by a penny to $5.50 per share. Over the next five years, it's sticking with long-term goals announced in April. Penney's expects double-digit annual earnings growth as it opens or relocates 50 stores each year over this time frame.

At a recent price of $63 per share, Penney's is trading at a very reasonable 11.5 times forward earnings. There will clearly be monthly sales fluctuations, including hot Julys and cooler Junes, but given the overall retailing landscape, J.C. Penney is the one to watch. I remain impressed by how effectively it has revived its business, especially since older-line peers such as Macy's, Dillard's (NYSE: DDS  ) , and Sears Holdings (Nasdaq: SHLD  ) continue to flounder. And anyone who can beat almighty Wal-Mart at its own game deserves a further look.

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. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

Read/Post Comments (0) | Recommend This Article (5)

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.

Compare Brokers

Fool Disclosure

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: 534074, ~/Articles/ArticleHandler.aspx, 10/21/2016 7:31:15 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...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,162.35 -40.27 -0.22%
S&P 500 2,141.34 -2.95 -0.14%
NASD 5,241.83 -4.58 -0.09%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2016 4:00 PM
JCP $8.66 Down -0.19 -2.15%
J.C. Penney CAPS Rating: *
DDS $58.46 Up +0.06 +0.10%
Dillard's CAPS Rating: **
KATE $17.62 Down -0.33 -1.84%
Kate Spade and Com… CAPS Rating: ***
SHLD $11.89 Up +0.59 +5.22%
Sears Holdings CAPS Rating: *
WMT $68.73 Down -0.16 -0.23%
Wal-Mart Stores CAPS Rating: ***