J.C. Penney Company, Inc. (NYSE:JCP) may be on the road to recovery, according to analyst Charles Grom of Sterne Agee. He initiated coverage on the stock earlier this month, and this week he reported to investors on his channel checks and views on the retail chain’s stock.
J.C. Penney Is Turning The Tide
According to Grom, J.C. Penney Company, Inc. (NYSE:JCP) is successfully unwinding the unpopular strategies put in place by now former CEO Ron Johnson, especially those in the areas of merchandising and pricing. He said these strides are beginning to help the retail chain turn the tide.
The company has begun reintroducing its couponing and discounting strategies while also returning its focus to its private brands and also basic store-level selling principles. Grom said their store checks indicate that J.C. Penney Company, Inc. (NYSE:JCP) is beginning to benefit from the changes brought back by CEO Mike Ullman.
They found wider use of coupons by customers and the return of customers seeking deals. They also noted more advertising of the company’s promotions and Father’s Day sales and also prominent in-store discounting.
Other Improvements At J.C. Penney
Among the other improvements Grom’s team noticed were improved store presentation and the revamp of the company’s home store. He said the store within-a-store concepts for Sephora, Jo Fresh, MNG, IZOD and Levi’s are especially appealing. He also said they feel “comfortable” with the chain’s decision to assign more capital expenditures to Sephora and some of the other smaller scale brands which attract J.C. Penney shoppers, like Dockers, Haggar, Disney and Giggle. According to Grom, these brands have the potential to generate significant traffic for J.C. Penney.
The chain’s newly redesigned home department, which is now in about 500 stores and makes up about 20 percent of the company’s sales, is being well-received, according to Sterne Agee’s channel checks. Grom says customers generally have positive things to say about the redesign and that it has a very appealing layout. He also noted that the company has updated and, in some cases, upgraded the merchandise that can be found there.
He believes there’s more work to do there, but that the company is on the right track and will keep optimizing the placement, pricing and assortment of merchandise in its home section.
Traction Ahead For J.C. Penney
Grom said while there are early signs of life at J.C. Penney Company, Inc. (NYSE:JCP), the chain hasn’t won its customers back yet. In fact, he doesn’t believe there will be any kind of “meaningful traction” until the third quarter of the year.
He said their checks indicate that right now, customer feedback is mixed. Some are generally pleased about the return of the company’s promotions, although others expressed a desire to see the company offer higher quality merchandise and a greater selection.
Grom believes that if management renews its focus on the core customer, some of these issues can be alleviated. He’s modeling for a return to the positive by the third quarter of the year. Sterne Agee has a buy rating and a $23 per share price target on J.C. Penney Company, Inc. (NYSE:JCP).