J.C. Penney Company, Inc. (NYSE:JCP) is still struggling, and losing market share to rivals. Imperial Capital analysts Mary Ross-Gilbert and Seweryn Sztalkoper said that the company's remerchandised home department sales should rise this year. J.C. Penney's revenues from home merchandise have declined from $3.19 billion in 2010 to about $950 million in 2013. That's because the home departments in most of the big stores were closed. Even when the departments were reopened, they were poorly merchandised.
J.C. Penney's guidance appears conservative
Imperial Capital analysts estimate J.C. Penney Company, Inc. (NYSE:JCP)'s first quarter sales to rise 4.3%, and second quarter revenues to jump 6.4%. After recent discussions with the company management, Ross-Gilbert and Sztalkoper said that J.C. Penney's incremental revenue opportunity could be as high as $400-$500 million this year. So, the comparable sales momentum is likely to improve in 2014 due to a jump in sales of home merchandise. Even a modest increase in sales across the rest of the store should offset the decline in revenue due to closure of 33 stores.
J.C. Penney Company, Inc. (NYSE:JCP) forecasts its first quarter sales to grow between 3-5%, and full year revenues to increase in mid-single digits. That's well below Imperial Capital's estimate of 8.7% and 6.6% respectively. Lower Q1 guidance could be because of two reasons. One, harsh winter weather and storms caused temporary store closures, and kept consumers away. Two, not-so-high expectations from the home department. The analysts expect gross margins to rise 268 basis points to 34.5% in Q1. They forecast Q2 and Q3 gross margins to improve to 37.5% and 36.5% respectively.
J.C. Penney to survive in the long-term
Modestly positive comparable sales during the fourth quarter last year suggest that J.C. Penney Company, Inc. (NYSE:JCP)'s turnaround is gaining traction. The Plano, Texas-based company's current cash position of $1.25 billion in cash and $500 million of revolver availability are sufficient to fund its turnaround plan. J.C. Penney also has the ability to tap into secured financing of $500 million. The research firm says that it expects J.C. Penney to survive in the long-term as a "value-priced' department store chain serving low-income consumers.
Imperial Capital has a Buy rating on J.C. Penney Company, Inc. (NYSE:JCP)'s longer-dated senior notes that mature between 2020 and 2097. But the research firm maintains Hold rating on shorter-dated senior notes that mature between 2015 and 2018. It has an Underperform rating on the company's shares with $2.50 price target.
J.C. Penney Company, Inc. (NYSE:JCP) shares soared 9.26% to $9.20 at 10:47 AM EDT.