Is J.C. Penney Finally Worth Buying?

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Dec 29, 2014
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Retailer J.C. Penney (JCP, Financial) has lost its charm in the past two years and the company is still struggling to improve its margins. However, J.C. Penney is valued at 37.12% lower than February 2014 book value. Such cheap valuation can tempt many investors that believe that a J.C. Penney turnaround may be on the cards and it may happen as the company’s business is slowly stabilizing.

In 2012 and early 2013, then-J.C. Penney CEO Johnson rolled out numerous improvements that didn't resound with customers. These included disposing of most rebates for regular low prices and accumulating new national brands. Current CEO Myron Ullman ought to be praised for balancing out sales in the eighteen months since he was gotten back to spare the retailer.

In the final quarter a year ago, J.C. Penney reported a 2% increase in same-store sales; this spoke to its first quarter of same-store sales jump since Q2 FY2014. In the first a large portion of this current year, J.C. Penney's same-store sales additions quickened to more than 6%. By gaining back sales volume, J.C. Penney helped its gross margin to 36% as of the second quarter (up from 30.2% in the first 50% of 2013).

In the mean time, the retail chain has kept decreasing operating costs, further enhancing margins. Ultimately, by holding capital consumptions within proper limits, the retailer hopes to deliver a smidgen of free money stream in the not so distant future, in the wake of blazing through more than $2.7 billion in 2013.

Presently in more or less 500 J.C. Penney stores, Sephora represents much higher store sales than when it first started the test run in 2006. The retail chain thought it would add up to around 5% of offers, however says it’s currently running in the high single digits. It's much higher at J.C. Penney's littler stores.

All the more significantly, the client that comes in for Sephora purchase things in different divisions as well. She's the second most cross-shopped client in the store. It's an association that will keep paying dividends to J.C. Penney. Movement general may at present be negative, yet it keeps on improing consecutively and turning positive is currently in sight.

A year ago retailers all over the place lamented the apparently unusual impact winter climate had on results. Whether it was dress stores, retail establishments, restaurants, or even dairies, the brutal blanketed climate was reprimanded for a huge number of under-performances. Indeed the White House faulted the "snow in winter" wonder on the economies below average first quarter.

Anyhow this fall, it was hotter climate that smoldered retailers. J.C. Penney, Macy's (M, Financial), and Kohl's (KSS, Financial) all said the disappointment of cool, fresh harvest time climate to appear on calendar brought about customers to stay away later in the second from last quarter. As the weather is starting to cool, retailers will witness a massive increase in sales and J.C. Penney should also enjoy higher customer traffic and sales volume.

Conclusion

After taking a look at the pros and cons, I think J.C. Penney is underpriced and is well positioned to grow. At the present valuation, J.C. Penney is a great buy for short as well as long-term investors.