Why JC Penney Will Continue Improving

JC Penney (JCP, Financial) reported a mixed set of numbers for the third quarter on the back of lowered sales of warm clothing. Its revenue was marginally down year over year, but the company managed to reduce its losses considerably. Its falling sales could be a matter of concern even as it lagged behind the already reduced expectations. Starting with its numbers, let’s have a detailed analysis of this stock and see what its future prospects are.

Its revenue for the quarter declined marginally to $2.76 billion from a year ago period of $2.77 billion and edged below the consensus estimate of $2.78 billion. On the other hand, the company significantly reduced its losses to 77 cents a share from $1.81 last year, while the analysts were expecting a loss of 93 cents per share.

The future looks better

Albeit, reduced losses look good, but the company will have to work on its sales. JC Penney is trying to pull itself together after the disastrous revamp it undertook around two years back. Although the retailer has improved since then, a lot more has to be done to call it a turnaround. In this direction, the management has planned for a change in leadership and named Marvin Ellison as its next president and CEO in place Mike E Ullman.

This is an extremely important decision as the company suffered a huge blow under ex-CEO Ron Johnson. Ellison has years of experience in the retail industry yet it will be a matter of time to see if his strategies work out for the company. Also, JC Penney discontinued 14 brands that were introduced by Johnson.

During the quarter, its sales declined as unseasonably warm weather reduced the demand for winter clothing. Along with this, poor performance from the back-to-school segment further added to its pressure. But the management anticipates stronger sales in the fourth quarter on account of the holiday season, which will be further backed by the dawn of winter. In fact, to date, November sales have been encouraging compared to last year, and it expects an increase of 2% to 4% in comps for the upcoming quarter.

With this in mind, the company is taking various initiatives to drive customer volume. And the management has made it a point not to repeat its previous mistakes. The growth prospects are based on its high-quality stylish offerings at affordable prices. JC Penney has a strong portfolio of powerful private and national brands, which are liked by its customer base. And it will carry out promotional marketing campaigns to highlight these offerings.

In addition Sephora inside JC Penney, as always, is doing a good job to drive more customers, which will play a significant role in boosting its sales. Apart from its brick-and-mortar stores, the company is also counting on its website to add to its top line.

Extending its online concept further, it recently introduced a new and improved iPhone App. In addition to a fast browsing and easier access to coupons it will allow customers to scan the barcode of an item in the store to quickly find its availability on jcp.com. These technological innovations will provide enhanced mobile shopping experience for its customers. Going forward, JC Penney is positive for its future prospects. The management cites that its customers are back, which is an important remark indicating growth.

Conclusion

Currently it does not have any trailing or forward P/E on account of its year-over-year losses. But its present quarter results have shown signs of improvement, and the company seems to be well on track for future growth. Although it will be too early to call this a turnaround, however as the new CEO steps in, investors must keep JC Penney on their radar as the stock has halved in the past two years. And if the right steps are taken with the company turning to profitability then the shares will rally yielding high returns.