J.C. Penney Company, Inc. (NYSE:JCP) has short interest equal to 30% of its total float, compared to a retail average of 7% and twice as high as the next most shorted retailer (Supervalu Inc, with short interest at 15% of total float), after weakness that started with a disappointing holiday season and extended into January.
“We are lowering comp and margin estimates across the group to reflect a tough December and weak beginning to January across apparel retail,” writes Goldman Sachs analyst Stephen Grambling. “Our view is based on a combination of weaker monthly industry data points (GS/ICSC index, retail sales for department stores, and average unique visitors to websites), our store visits, and website channel checks.”
J.C. Penney clearances increasing after the holidays
But while Grambling expects to see a re-acceleration for retail broadlines as a group, J.C. Penney Company, Inc. (NYSE:JCP) may have a harder time recovering.
“Clearance initially looked well controlled after the holiday before ramping in recent weeks. We found traffic to be mixed relative to peers as lines were sparse, but existent,” Grambling writes about J.C. Penney Company, Inc. (NYSE:JCP), which he rates Neutral with a $6 price target, compared to a current stock price of $6.51. Considering that the retailer has one of its industry’s higher valuations (10x, compared to many stores with 6x – 9x multiples) despite being a mature business with vulnerable same stores sales, it certainly doesn’t look like good value.
J.C. Penney unique visitors fell 20%
Store check found that J.C. Penney Company, Inc. (NYSE:JCP)’s unique visitors dropped by 20% in December, and the fact that clearances are expanding instead of pulling back after the holiday season has ended is the sign of a company desperate for traffic. And while it’s an imperfect gauge of user interest, Grambling also found that Google search momentum has been falling.
While some analysts still rate J.C. Penney Company, Inc. (NYSE:JCP) as a Buy, it seems clear that the retailer is having a rough quarter, and now it seems that it might forgo a January sales report and let investors wait for the next quarterly earnings report. With so much reason to worry, short sellers must be thinking that investors aren’t willing to wait that long before taking their money elsewhere.