J.C. Penney (NYSE:JCP) has been one of the more volatile stocks over the last year as it undergoes one of the biggest changes in its 100-year history. Shares rallied last February when CEO Ron Johnson announced his revamp plan, but they have been on a mostly downward trajectory since as same-store sales have cratered and its core customer demographic seems to be fleeing.
The stock jumped last week when Penney's announced the return of sales, but that move only underscores the confusion surrounding the retailer as it seems to be unsure of its new strategy. In the following excerpt from our premium research report, we take a look at three key areas for investors to watch with J.C. Penney:
3 Areas Investors Must Watch
1. Same-store sales
Comparable sales are always a widely followed statistic in the retail sector, but for J.C. Penney this figure will be especially important. Investors will know the turnaround strategy is working if the retailer's comps bounce back above 2011 levels. That means overcoming the 18.7% and 21.7% drops in the first two quarters since the rebranding, which will require an increase in the 25% range. That level of same-store sales growth often takes retailers several years to accomplish, especially in the sluggish economic environment we've seen recently.
Similarly, Internet sales deserve some attention from investors as well, as those numbers have fallen even more sharply than in-store sales. Though they only make up roughly 8% of J.C. Penney's sales, online shopping is growing at a much faster rate than bricks-and-mortar retail and is also more profitable. Investors should expect that segment to be growing, and growing faster than in-store sales.
2. Walking back the strategy
The decline in same-store sales indicates the current performance weakness in the turnaround strategy, but perhaps as important are management's repeated attempts to walk back the strategy.
Eliminating sales and coupons had been a key pillar of the revamp, as Johnson has said he believed that shoppers were simply "tired" of that rigmarole, but the chain has already reversed course in a number of areas. Management has recognized that a number of the phrases in the new merchandising plan, such as "best price Fridays" were confusing to customers. In August, the retailer said it would bring back "clearance" sales and stop running its "month long" specials. Johnson is attempting to retrain Penney's customers, but he seems to have recognized some of the errors in his ways, saying, "We thought 'Why are we trying to teach customers new language to shop?' We're just trying to be straightforward."
More recently, J.C. Penney emailed a $10 "gift" to customers, essentially a coupon encouraging them to visit its stores.
Of course, the company's adjustments to its marketing model aren't necessarily problems, as it could eventually find the right balance between promotional events and store redesign, but it's important for investors to follow these developments. They offer the best insights into management's thoughts on how the rebranding attempt is progressing.
3. Rural stores
While the revamp at the primary 700 J.C. Penney stores remains in question, investors still have no idea what Johnson is planning on doing with the 400 stores that didn't make the rebranding cut. Those locations tend to be smaller, with footprints under 60,000 square feet, and in rural areas. Johnson recently said, "We're doing a lot to drastically improve the product and presentation for those customers that shop those 400 stores, and we're going to do it by November 1."
But J.C. Penney's rural stores face stiffer competition from online channels and Wal-Mart, which has come to dominate the rural retail landscape. The revamp in all of J.C. Penney's stores will answer the question of whether it has a merchandise problem or a real estate problem. Half of its stores are in suburban malls, a struggling retail format, and many see the rural locations as a liability rather than an asset.
If you found the above information useful, I encourage you pick up a copy of the full report, which features analysis on Penney's opportunities and risks, as well as reasons to buy and sell. As a bonus, the report also comes with a year's worth of free updates to keep you in the loop on earnings reports and other breaking news. You can get your copy of this insightful report now. All you have to do is click right here.
Fool contributor Jeremy Bowman has no position in any stocks mentioned, and neither does The Motley Fool. 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.