Deutsche Bank analysts Paul Trussel and Matt Siler observe 40%-85% markdowns this time of the year when promotions are the name of the game.

J.C. Penney JCP

“As is normal this time of year, promotions across the mall remain heavy, with markdowns of 40%-85% off, as retailers act to clear goods ahead of the upcoming Valentine’s Holiday and eventual start of Spring. From our observations, each of the major Department Stores have incremental promotional events on a YOY basis (to draw traffic, which is down HSD QTD),” observe the analysts.

Promotions at J.C. Penney

There is some divergence in the extent of discounting, however. Deutsche Bank says that year-on-year, J.C. Penney Company, Inc. (NYSE:JCP) and Kohl’s Corporation (NYSE:KSS) engaged in heavier promotions, while Macy’s, Inc. (NYSE:M) and Nordstrom, Inc. (NYSE:JWN) were level or marginally down.

J.C. Penney Company, Inc. (NYSE:JCP) apparently stepped up the tempo of its promotional efforts in the week under review – the retailer had a higher number of events and offered larger discounts through its clearance sales.

  • Its homes sales offered 40%-50% sales on furniture and mattresses.
  • From Jan 15 through Jan 20 the retailer marked down another 20% if the customer paid using a JCP credit card but 15% via any other mode of payment.
  • Family active wear products were promoted effective Jan 15 with markdowns ranging from 25%-50%.
  • Specific clearance items were advertised with discounts of an additional 25% on both online and in-store purchases.

The breadth of discounting at J.C. Penney Company, Inc. (NYSE:JCP) stores this year appears to be wider than the same period in 2013, which was marked by a heavy focus on clearance of home items on which the retailer offered discounts of 20% – 70%.

J.C. Penney: Discounting trend

Deutsche Bank quotes data from SaleTally to reveal that average discount at J.C. Penney Company, Inc. (NYSE:JCP) has been creeping up in recent weeks.

The week’s average discount of 40% was much higher than the 31% estimated in week 44, and 37% seen in the previous year.

J.C. Penney: Short on data on holiday sales

The retailer was universally criticized for its laconic press release on sales during the holiday season, which simply said it was “pleased with its performance for the holiday period, showing continued progress in its turnaround effort,” and analysts feared the worst.

Goldman Sachs chopped its price target on the stock from $9.50 to $7 and rated it as Neutral.

Closing stores, cutting jobs

Shortly thereafter the company announced it was closing 33 stores and thereby reducing headcount by 2,000 employees.

Analysts at UBS Research estimated that J.C. Penney Company, Inc. (NYSE:JCP)’s stores are currently losing $200k per store in EBITDA (excluding corporate expense allocation), and losing $500k in free cash per store per year, with only limited scope for further reduction in costs.

Deutsche Bank’s view

The analysts have a Hold rating on J C Penney.