Veteran retailer J.C. Penney (JCPN.Q) may still be alive, but it's not off life support yet. A better-than-expected Q3 earnings report -- losses came in at $0.29 a share, compared with analyst estimates of $0.56 -- failed to move the stock, which has been stuck at $1 for the past year. Given the company's ongoing struggles, there are few reasons for investors to add this retailer's stock to their portfolio.
Cutting its losses
Along with other major department stores, J.C. Penney has been struggling with the dominance of Amazon (AMZN 0.37%). Penney's reported $2.5 million in revenue in its third-quarter report, with substantial losses of $93 million, but that was a drop from $111 million in Q3 2018. The store's "Plan for Renewal" includes selling excess inventory and closing stores with weak sales, and CEO Jill Soltau called the quarter "exciting and energizing" in the pursuit of these goals. She listed results "from the early implementation of our Plan for Renewal, which is focused on driving traffic, offering compelling merchandise, providing an engaging experience," as proof of the retailer's resilience.
Credit income also helped drive Penney's Q3 earnings. Income from the retailer's credit card program surged to $111 million from $80 million.
Soltau has helped the retailer stay afloat after years of mismanagement by former CEO Marvin Ellison. By cutting its losses after ending appliance sales and focusing on a commitment to reducing debt, Penney's managed to survive with a strong earnings report.
Improved guidance for the year
Penney's Q3 earnings included heightened guidance for fiscal 2019. Management estimated adjusted EBITDA at $475 million, an increase from its previous guidance of $440 million, thanks to increased profitability and loss reduction. Cash flow is also expected to return to positive territory for the first time since 2014.
Penney's is also looking to the future with an experimental store that recently opened in Hurst, Texas. The store will offer fitness classes and other services to shoppers in addition to specialized clothes collections, with the goal of attracting a wider clientele to its brick-and-mortar locations. This investment in a new destination store shows that Penney hopes to compete with online retailers by offering a unique shopping experience.
Still not a great option
While Penney's has shown resilience with its last earnings report, the corporation is still saddled with $4 billion in debt and faces an uphill climb as it battles Amazon and struggles to turn a profit. Penney's market cap is $362 million with shares at $1, less than retail competitors like Target (TGT) ($63 billion, with a $124 stock price). For investors looking for long-term returns from a corporation with staying power, Penney's deserves a pass.