The economy is struggling, and so is J. C. Penney
Company Inc. (JCP). The company’s lackluster performance has set it
back while many of its peers have walked away with impressive
numbers. But is this enough for an investment decision?
Superficially, a stock may look weak but this should not be the
criterion for ones judgment. What looks good from the outside may
not actually hold promises in the long run. In short, looks can be
deceptive.
What else do we look for before investing in a stock? For a
comprehensive answer, we must dig deeper to find whether the
company is actually trying to address its problems, and what
measures or remedies it is taking to lift itself. The steps may not
immediately lead the company on a growth path immediately, but slow
and steady wins the race.
Rising stocks are always lucrative for investors. In a growing
economy, everything appears to be on the rise, and vice versa. But
that is where an investor must act prudently. Instead of being
influenced by market sentiments, one must carefully analyze one's
portfolio of stocks.
A close look will give a brief idea of whether the risks in a
stock are systematic or unsystematic. A dismal economy will
definitely make the stock look less attractive, but that doesn't
necessarily indicate that the stock is devoid of growth
propositions.
A SWOT analysis of the stock will certainly make our task much
simpler. A diligent use of the tool will help in assessing and
scrutinizing equity investments. Every stock has its own strengths
and weaknesses that need to be evaluated. And it is also true that
every opportunity carries a risk factor. Our approach through this
write up is to analyze J. C. Penney on this platform.
Let’s start with…..
Counting the Strength
We believe J. C. Penney’s well diversified supplier base,
compelling private and national brands, marketing campaigns,
point-of-sale technology initiatives as well as effective cost and
inventory management should augur well over the long term. The
company is leaving no stone unturned to become cost resilient, and
is focusing on closing underperforming stores and exiting its
catalog business.
In order to enhance customers’ shopping experience, J. C. Penney
is also focusing on remodeling, renovating and refurbishing stores
as well as refreshing its website functionality, considering the
steady migration to online shopping. The launch of compelling new
merchandise and the JCP Rewards program should also bode well.
The in-store Sephora departments continue to draw younger and more
affluent customers. J. C. Penney has also incorporated stores of
MNG by Mango
and Call It Spring by The ALDO Group in its store suite.
Where Lies the Weakness?
J. C. Penney has been witnessing falling comparable-store sales
since the last four months. Comps declined 1.9% in August, 0.6% in
September, 2.6% in October and 2% in November.
Between January and November 2011, comparable-store sales fell
as low as 2.6% (in October) and rose as high as 6.4% (in February
and April) recording an average growth of a meager 0.8%. The last
time J. C. Penney registered positive growth was in July, when
comparable-store sales increased 3.3%. Since then, the company has
seen a downtrend.
Monthly sales data has also not been encouraging for J. C.
Penney, which has been falling persistently in the last four months
– 4.5% in August, 3.6% in September, 6.6% in October and 5.9% in
November. July was the last month when sales inched up 1%. J. C.
Penney experienced a steep decline of 6.6% (in October) and
recorded a highest increase of 3.4% (in April) in sales between
January and November 2011.
J. C. Penney also could not make the most of the Black Friday
weekend sales, when retailers such as Macy’s Inc.
(M), Saks Incorporated (SKS), Ross Stores
Inc. (ROST) and Limited Brands Inc. (LTD)
posted better-than-expected November comparable-store sales growth
of 4.8%, 9.3%, 5% and 7%, respectively.
Seeking Opportunities
An economy plagued by financial crisis and high unemployment
remains a bitter truth but relentless efforts to emerge from the
doldrums cannot be ignored. Even J. C. Penney is trying every means
to tide over a distressed economy.
Its latest move of acquiring a 16.6% stake in Martha
Stewart Living Omnimedia Inc. (MSO) is just an another step towards
uplifting itself. The company is betting hard on Martha Stewart to
be a fortune changer. The alliance between the two took place on
December 7.
In October, J. C. Penney entered into an asset buyout agreement
with Liz Claiborne Inc. (LIZ). Per the deal, J. C.
Penney acquired the global rights for the Liz Claiborne portfolio
of brands and the U.S. and Puerto Rico rights for Monet, a fashion
jewelry brand, for $267.5 million.
Will these acquisitions prove to be a game changer for J. C.
Penney? We can only wait and watch how the retailer moves ahead –
whether it walks the growth trajectory or continues to trail.
Threats
The economy still looks gloomy, and whether 2012 will mark the
resurrection is tough to say, unless some concrete steps are taken
to avoid another cliff fall. Cuts are deep and wounds are not
healed.
Each and every company is vying to survive the downturn, and
eventually be at the helm. J. C. Penney, which does not remain
immune to economic upheavals, is no exception. The company has been
losing its foothold in the market as it struggles against retail
chains such as Macy’s and Kohl’s Corporation
(KSS).
Given the pros and cons embedded in J. C. Penney, it might be
difficult for an investor to decide whether to Buy, Hold or Sell
the company’s stock. That’s where we come in with the
Zacks Rank.
Currently, J. C. Penney holds a Zacks #3 Rank that translates into a
short-term Hold rating.
PENNEY (JC) INC (JCP): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
LIZ CLAIBORNE (LIZ): Free Stock Analysis Report
LIMITED BRANDS (LTD): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
MARTHA STWT LIV (MSO): Free Stock Analysis Report
ROSS STORES (ROST): Free Stock Analysis Report
SAKS INC (SKS): Free Stock Analysis Report
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