Analysts at Sterne Agee forecast that J.C. Penney Company, Inc. (NYSE:JCP) might be able to deliver better-than-expected first quarter results due to improving trends sequentially, along with significantly higher gross profit margin year over year.

J.C. Penney

In a note to investors, Sterne Agee analyst Charles Grom and his colleagues emphasized that they are still concerned with J.C. Penney Company, Inc. (NYSE:JCP) structurally in terms of its position in the retail industry. They also maintained a Neutral rating for the stock; however, they believe that the company’s shares could rally in the near term.

First quarter estimates

Grom and his team estimated that the retailer’s same store sales will increase 2%, compared with the 4% consensus estimate and the company’s guidance of in the range of 3% to 5%. Grom explained that J.C. Penney Company, Inc. (NYSE:JCP) was still running in the negative despite an improvement in February because of the 3.5% decline in same store sales in January. The analyst also noted some deterioration in March due to poor weather and the shift in timing for the Easter holiday. April improved significantly, but probably not enough to meet the retailer’s guidance, he believes.

The analyst forecast that J.C. Penney Company, Inc. (NYSE:JCP) will “possibly experience a strong Easter selling season and momentum into Mother’s Day, which could give the bulls something to hang their hats on.”

Grom and his fellow analysts estimated that J.C. Penney Company, Inc. (NYSE:JCP) will report a loss of $1.29 per share, compared with a loss of $1.38 per share in the first quarter a year ago. The consensus estimate is $1.25 per share in losses. The analyst projects that J.C. Penney’s gross profit margin will be around 35%. The analyst explained that the estimate reflects improving sales, a much higher private label mix, and lower clearance activity, partially offset by the impact of periods of promotional activity during the quarter.

According to Grom, J.C. Penney Company, Inc. (NYSE:JCP) is expected to incur EBITDA losses of $150 million, EBIT losses of $305 million and a net loss of $402 million. They estimated that the company will report a 2% decline in SG&A costs, bringing them to $1.056 billion.

J.C. Penney still continues to burn cash

The analyst estimated that J.C. Penney Company, Inc. (NYSE:JCP)’s cash burn was ~$323 million during the quarter, based on ~$402 million loss, $155 million depreciation and amortization (D&A), a modeled working capital of ~$14 million and expected cap-ex of $63 million. He believes J.C. Penney Company, Inc. (NYSE:JCP) probably ended the quarter with approximately $1.19 billion cash on its balance sheet.

Grom and his colleagues commented, “Still cash continues to flow out of the coffers, investors should continue to scrutinize turnaround, and keep in mind that, save another capital infusion, sales trends need to accelerate quickly to avoid low liquidity levels by 3Q15. Net, we stay on the sidelines for now.”