Is This Retailer Primed For A Turnaround?

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Sep 23, 2014

The departmental retailers are facing a lot of problems in boosting sales. Consumers are unwilling to spend much, which is leading to lower sales. Also, a highly promotional environment and lower mall traffic is making it all the more difficult for retailers to grow sales.

However, there is one retailer that has been suffering badly from these problems as well as its own. JC Penney (JCP, Financial) is one such retailer whose missteps were a major reason for its poor performance over last two years. But this company seems to be making efforts to stage a comeback. This was evident from its second-quarter results, posted last month, which surpassed Street’s expectations. Let us take a look.

Analyzing the details

Driven by higher demand for its products, revenue surged 5% over last year, clocking in at $2.8 billion. Same-store sales also grew 6% as higher store traffic and more transactions boosted sales. Higher demand for women’s wear and accessories and higher sales of fine jewelry enabled sales to grow.

The retailer is indeed in a recovery phase, wherein it has been taking initiatives to grow sales. For instance, Sephora shops, in the stores, resulted in a 25% jump in sales of cosmetics and fragrances. Also, same store sales grew 11% for this segment. Further, home store sales surged 25% as people flocked in its stores.

Moving down to the bottom line, Penney reported a loss of $0.75 per share. Although this looks like an unattractive number, there is more than what meets the eye. The bottom line has indeed recovered from a loss of $2.16 per share in the previous year. Also, it is better than the analysts’ estimate of $0.98 per share. Thus, the departmental retailer is managing its costs and inventory efficiently.

Strategies formulated

Therefore, it is clearly evident that people are now willing to spend on JC Penney’s products. It has increased its product assortment throughout all the varieties, including private label as well as national brands. Moreover, it has started investing in marketing and promotions, which were stopped once, leading to dwindling sales. Its marketing campaigns are effective enough to lure more customers.

As against the peers

When compared to peers, Macy’s (M, Financial) and Kohl’s (KSS, Financial), JC Penney is an outperformer. The stock price has appreciated the most for Penney since the beginning of the year. Its share price has surged 21%, whereas Macy’s and Kohl’s are at 15.8% and 5.6%, respectively.

Further, Macy’s reported a lackluster quarter. It failed to meet analysts’ expectations on both the lines and lowered its guidance for the year. Its sales jumped 3.4% only, whereas Street estimated it to be 3.9%. Also, the bottom line stood at $0.80 per share, as against the estimate of $0.86 per share. Also, it had to rely deeply on discounts to increase its sales.

Kohl’s results were not so attractive, but it did meet expectations. Its revenue dropped 1% and same-store sales declined 1.3%. However, it managed to register an earnings growth of 9% over last year, clocking in at $1.13 per share.

The bottom line

J Penney’s worst phase seems to be over. It is now heading towards success and its efforts should be fruitful in the months to come. Its efficient inventory management and effective marketing campaigns should help generating sales. Also, it has combat competition and is heading ahead of its peers. This retailer now looks ready for a turnaround.