J.C. Penney (JCPN.Q) will release its quarterly report on Wednesday, and sentiment among investors about the long-struggling department-store retailer continues to be gloomy. Rivals Macy's (M -1.30%) and Kohl's (KSS -0.53%) have sharply outperformed J.C. Penney stock, and even Sears Holdings (SHLDQ) has given investors more hope than Penney about taking maximum advantage of real-estate assets. As a result, Penney's future remains extremely cloudy, and early signs of the holiday quarter's performance don't suggest that the news will be any better when it releases final results.

J.C. Penney has found itself in a downward spiral for a couple of years, as the hiring of former Apple executive Ron Johnson as CEO turned out not to be the hoped-for saving grace for the retailer's efforts to execute a successful turnaround. Now the company has gone back to its old business model, trying to make the best of the innovations it sought to develop while at the same time wooing back a customer base that has largely sought the dependability of Macy's, Kohl's, Sears, and other retail competitors. Let's take an early look at what's been happening with J.C. Penney over the past quarter and what we're likely to see in its report.

Source: J.C. Penney.

Stats on J.C. Penney

Analyst EPS Estimate


Year-Ago EPS


Revenue Estimate

$3.86 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will J.C. Penney earnings ever recover?
In recent months, analysts have cut their views on J.C. Penney earnings even further, widening their loss estimates for the quarter ended in January by almost a dime per share and boosting loss expectations for the next fiscal year by more than 10%. The stock has fallen steadily, dropping 38% since mid-November.

Investors have already gotten a couple of readings on how bad Penney's holiday-quarter results could be. Last month, the retailer gave vague preliminary guidance for the quarter, with no specific figures and only reiterating guidance that called for some level of same-store sales and gross margin growth. Then, earlier this month, Penney announced that comps had indeed grown, but only by 2%, leaving investors disappointed given the huge declines of more than 30% in the previous year that should have made favorable comparisons much easier.

One big problem during the holiday season was that many retailers had to discount merchandise extensively in order to keep inventory levels down. Sears reported plunging same-store sales, reflecting the general challenge that lower-end retailers faced, and Kohl's also saw comps fall by 2% for its fiscal fourth quarter. By contrast, Macy's managed to grow comps by 3.6%, with many suggesting that Penney's woes drove many customers straight to that competitor's stores.

Increasingly, signs of discontent are making even ardent Penney supporters question their resolve. Two weeks ago, the company said CFO Ken Hannah would leave next month, raising some of the normal concerns that come up when chief financial officers head for the exit. Moreover, major investors have implemented damage control measures, with billionaire George Soros cutting his position in the ailing retailer by about a third between Sept. 30 and Dec. 31, according to the most recent SEC filings.

Worst of all, even if Penney survives, it still hasn't addressed the core problems that forced the company to engage in its costly turnaround program in the first place. With its core baby-boomer customer base aging, J.C. Penney hasn't done as good a job as Macy's in wooing younger shoppers. Meanwhile, ongoing losses have weakened Penney's balance sheet further, and could once again force the company to raise more capital in a manner that could devastate current investors.

In the J.C. Penney earnings report, watch to see how the retailer addresses its disappointing holiday quarter. Without a solid plan for recovery, Penney won't be able to regain the lost confidence of its remaining investors.

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