LIZ Liz Claiborne, Inc.

J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently delivered fourth-quarter 2011 adjusted earnings of 74 cents a share that exceeded the Zacks Consensus Estimate of 67 cents. However, it plunged 36.8% from the prior-year quarters earnings of $1.17 a share.

The company’s strategic initiatives to reduce costs facilitated it to improve the bottom-line results.

On a reported basis, including one-time items, the company reported a loss of 41 cents a share compared with $1.09 in the prior-year quarter.

Quarter Details

The quarterly sales of $5,425 million fell short of the Zacks Consensus Estimate of $5,498 million, and declined 4.9% from the prior-year quarter. Total sales were adversely affected by the discontinuation of the catalog and catalog outlet business. Internet sales through jcp.com decreased 3.1% to $480 million in the quarter.

Comparable-store sales inched down 1.8% during the quarter compared with a 4.5% increase in the prior-year period. 

The company’s gross profit fell 23.6% to $1,637 million, whereas gross profit margin shrinked 740 basis points to 30.2%, reflecting lower sales, increased markdown and actions taken towards the company's new pricing and promotional strategy.  

Other Financial Details

J. C. Penney ended the quarter with cash and cash equivalents of $1,507 million, long-term debt of $2,871 million and shareholders’ equity of $4,001 million. For the full year, the company deployed $634 million toward capital expenditures, and generated free cash flows of $23 million.

Transformation is the New Buzz

Earlier, J. C. Penney announced a string of strategic measures to enhance shareholder’s value in the coming four years.

New pricing strategy, fresh logo, strategic merchandise initiatives, reduction in costs, enhancement of shopping experience and customers shopping at their own terms -- you name it, and Ron Johnson’s (Chief Executive Officer of the company) turnaround blueprint has it. In short, we can say that the company is transforming the way it operates.

(Read our full coverage on the story: Big, New Ideas from J. C. Penney)

Opportunities

J. C. Penney is trying every means to tide over a distressed economy. The company entered in a strategic alliance with Martha Stewart Living Omnimedia Inc. (MSO) to uplift itself. The company is betting hard on Martha Stewart to be a fortune changer.

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.

These moves are expected to increase sales and improve traffic for the company. We remain optimistic and believe that these measures will definitely pave the way for continued growth and innovation.

Forecast

Management stood by its earlier guidance and expects fiscal 2012 earnings to meet or exceed earnings per share of $2.16. The current Zacks Consensus Estimate for fiscal 2012 is $1.79 per share.

However, on a reported basis, including one-time items, J. C. Penney forecasts earnings of $1.59 per share.

Capital expenditures are expected to be approximately $800 million for fiscal 2012 to supplement the company's transformational efforts.

J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.

Currently, we have a long-term Neutral rating on the stock. Moreover, J. C. Penney holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 
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