J.C. Penney Company, Inc. (NYSE:JCP) has recently marked down a wide array of branded home products to levels not seen before, observes Deutsche Bank analysts.
Paul Trussell and team at Deutsche Bank, in their updated report on retailing and department stores, deem the recent promotions by J.C. Penney Company, Inc. (NYSE:JCP) to be aggressive.
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Reorienting new strategy
J.C. Penney Company, Inc. (NYSE:JCP)’s former CEO Ron Johnson was betting big on initiatives such as a more upscale home department selling designer goods such as $60 toasters and $1,695 chairs from Happy Chic. These initiatives, however, could not resonate on the retailer’s middle-market customers. To stem the falling fortunes, J.C. Penney’s new CEO Mike Ullman has been gradually eliminating any trace of his predecessor by planning to sell low-priced items.
J.C. Penney’s aggressive promotions
Recently, Deutsche analysts observed Jonathan Adler Happy Chic products on clearance at 30 to 60% off, while Michael Graves products were available at a 40 to 55% discount. Paul Trussell and team at Deutsche Bank, however, believe such a deep discounting is a negative signal for 3Q GPM results. J.C. Penney Company, Inc. (NYSE:JCP)’s focus on aggressively clearing out goods could point to its making room for adding back more private label and opening price point SKUs.
Deutsche Bank analysts have highlighted some of the recent aggressive promotional cadence from J.C. Penney Company, Inc. (NYSE:JCP) such as the ‘Monster Sale’ event, ‘Doorbusters’, and the ‘Friend and Family’ event. In contrast, the analysts point out there were no big events in 2012.
Deutsche analysts have pegged J.C. Penney Company, Inc. (NYSE:JCP)’s target price at $7.39 and assigned the company a Hold rating. Their price target is based on a premium forward EV/EBITDA multiple to account for their belief JCP will continue to trade on a turnaround multiple.
Deutsche’s take on other retailers
The recent industry update from Deutsche Bank AG (NYSE:DB) (ETR:DBK) also highlighted some of the promotional initiatives taken by other retailers such as Target Corporation (NYSE:TGT), Wal-Mart Stores, Inc. (NYSE:WMT), Bloomingdale’s, Kohl’s Corporation (NYSE:KSS) and Macy’s, Inc. (NYSE:M).
Paul Trussell and team at Deutsche Bank have assigned a Hold rating for Macy’s, Inc. (NYSE:M), Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT), while assigning a Buy rating on Macy’s, Inc. (NYSE:M) with a target price of $45.44. Justifying their target price, Deutsche Bank analysts feel a 12x multiple for Macy is warranted given its better comp trends and upside to EBIT margins through both sales leverage and improved EBIT flow through. The analysts’ price target is based on 12 times their FY 14 EPS estimates, which they feel is a fair multiple for a department retail store.