Analysts at Sterne Agee reduced their estimates for J C Penney Company Inc (NYSE:JCP) for the fourth quarter citing the reason that the retailers pace of comp recovery in recent quarters has been substantially lower than their expectations 12 to 18 months ago.

J C Penney Company Inc Estimates Reduced by Sterne Agee

In a note to investors, Sterne Agee analyst Charles Grom and his team said, “We don’t buy into the company’s expectations for comp recovery (MSD= ’15-’17) or LT EBITDA target of $1.2B.”

During the third quarter, J C Penney Company Inc (NYSE:JCP) reported flat comp sales and issued lower than expected comp guidance for the fourth quarter. The analysts also noted its 3Q traffic was again negative and expects to experience a similar performance in 4Q.

Grom and his fellow analysts said their conviction on J C Penney Company Inc (NYSE:JCP) was also based on the extreme competitive retail environment. The analysts stated that supporting the company’s shares is currently difficult.

The analysts noted that J C Penney’ cash perspective was favorable. The company burned around $160 million less cash than expected with working capital being a $95 million source of upside (inventories down 10%) in the recent quarter.

Stock rating and estimates for J C Penney

Grom and his team reiterated their Neutral rating for the shares of J C Penney Company Inc (NYSE:JCP). The analysts lowered their earnings estimate for the company to $0.00 from $0.13 per share in the fourth quarter.

The analysts expected J C Penney’s EBIT margins to improve ~500 bps compared with their previous expectation of ~600 bps.

Grom and his team also adjusted their EPS estimate for J C Penney Company Inc (NYSE:JCP) to -$2.65 per share for the full year 2014 and -$1.70 per share for the full fiscal 2015. The analyst previously estimated -$2.68 for FY14 and -$1.74 for FY15.

J C Penney’s business outlook

The management of J C Penney Company Inc (NYSE:JCP) expected to achieved comp sales growth of around 2% to 4% and gross profit margin improvement of 500-600 bps for the fourth quarter. They also estimated that the company’s SG&A expenses will be slightly higher compared in the same period last year.

For the full year 2014, J C Penney Company Inc (NYSE:JCP) lowered its comp guidance growth in the range of 3.5% to 4.5% from mid-single digit and adjusted its GPM growth outlook to 500-600 bps.

J C Penney Company Inc (NYSE:JCP) also maintained a positive free cash flow guidance and estimated to end the year with ~$2.1billion in liquidity.

Positive things to consider

Grom and his team identified some positive things to consider about J C Penney Company Inc (NYSE:JCP) including the fact that its GPM improved 720 bps year-over-year during the third quarter. Its inventory declined 10.4% despite a 50 bps decline in sales growth. The company controlled its expenses well and sales trends improved in October.