JC Penney (JCP) Q3 Loss Narrower Than Expected, Comps Gain

Shares of J. C. Penney Company, Inc. (NYSE:JCP) , which have tanked 66.7% in a year, wider than the industry’s slump of 39.9%, took a sharp U-turn and rallied 15.3% on Nov 10. This upside was witnessed after the company impressed investors with third-quarter fiscal 2017 results.

The company’s bottom line came in above the Zacks Consensus Estimate after missing it in the preceding quarter, while the top line surpassed the same for the second time in row. However, the big take away from this quarter was rise in comparable-store sales (comps) that marked the best quarterly performance since fiscal 2016.

Let’s Unveil the Picture

J. C. Penney posted adjusted loss per share of 33 cents, narrower than the Zacks Consensus Estimate of a loss of 43 cents. In the prior-year quarter, the company had reported loss of 21 cents. Also, the company delivered net loss of 41 cents on a GAAP basis, wider than the loss of 22 cents a year- ago.

The company’s total net sales of $2,807 million surpassed the Zacks Consensus Estimate of $2,759 million but slipped 1.8% year over year after witnessing a gain of 1.5% preceding quarter. The year-over-year decline in sales was primarily due to store closures. So far in the year, the company had shut down 139 stores.

However, comps inched up 1.7% compared with a decline of 0.8% in the prior-year quarter. During the quarter, home, Sephora, footwear and handbags were the best performing divisions that outweighed the company’s total comps.

The company stated that in an effort to clear away slow moving goods mostly from women’s apparel department, it increased markdowns in September and October. Following the liquidation of slow moving inventory, the company’s fund increased only to help it invest in fresh as well as trending merchandise categories.

Gross profit in the quarter decreased 10.1% to $955 million, while gross margin contracted 320 basis points (bps) to 34%. Adjusted EBITDA declined to $108 million from $174 million in the prior-year quarter, while adjusted EBITDA margin decreased 230 bps to 3.8%.

Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $185 million, long-term debt of $4,039 million and shareholders’ equity of $1,078 million. Merchandise inventory levels decreased 8.8% to $3,365 million.

In the reported quarter, the company also generated negative free cash flow of $327 million. Further, it incurred capital expenditures of $95 million down from $122 million in the year-earlier quarter.

J.C. Penney Company, Inc. Holding Company Price, Consensus and EPS Surprise

2017 Outlook

For fiscal 2017, the comps are projected in the range of down 1% to flat. Cost of goods sold is now forecast to increase by 100-120 bps year over year. The company expects adjusted earnings per share in the band of 2-8 cents. The stock has seen the Zacks Consensus Estimate for fiscal 2017 being pegged at 6 cents.

J. C. Penney carries a Zacks Rank #3 (Hold).

Interested in the Retail Space? Check These

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American Eagle Outfitters delivered an average positive earnings surprise of 3.4% in the trailing four quarters and has a long-term earnings growth rate of 8.7%.

Boot Barn Holdings has an impressive long-term earnings growth rate of 15.7%.

Shoe Carnival delivered an average positive earnings surprise of 20% in the trailing four quarters and has a long-term earnings growth rate of 12%.

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