J.C. Penney Company, Inc. (NYSE:JCP) has finally revealed more detailed same store sales (SSS) data for the holidays, and it’s now clear why the company was so vague back in January. Holiday SSS were up 3.1% year on year, but that means December was actually down 1% against the expected 3% increase. Even worse, the January numbers that J.C. Penney Company, Inc. (NYSE:JCP) may have been waiting on to soften the blow came in at -4% SSS.
J.C. Penney bull case is ‘increasingly unrealistic’
“The bull-case scenario for multi-year +HSD comps is increasingly unrealistic,” writes UBS analyst Michael Binetti, who lowers his JCP price target to $4 from $5 and rates J.C. Penney Company, Inc. (NYSE:JCP) a Sell. Binetti is also lowering his 1H14 and 2014 year end SSS estimates to 5%, down from 7% and 6% respectively, and even that comes with downside risk.
Prescience Partners returned 6.75% for the second quarter, underperforming the S&P 500's 8.55% return but coming out ahead of the Barclay Equity Long/ Short Index's 2.62% return. However, for the first six months of the year, Prescience is up 30.66%, doubling the S&P's 15.25% return and smashing the Barclay Equity Long/ Short Index's 9.27% return. Read More
“Though we do not see structural barriers to J.C. Penney Company, Inc. (NYSE:JCP) achieving 36-38% GMs [gross margins] longer term, we believe sluggish 4Q sales trends and a hyper competitive retail environment will make it difficult for J.C. Penney Company, Inc. (NYSE:JCP) to clear-thru excess inventory at an improved selling margin rate,” he writes.
J.C. Penney Company, Inc. (NYSE:JCP) has recently closed 33 unprofitable stores in an attempt to reduce its cash burn and rebuild on a smaller base of better locations, but the retailer is still expected to burn $450 million this year, and that’s assuming gross margins don’t fall off any further, which Binetti considers to be a real possibility.
Others see trouble ahead for JCP
Binetti isn’t the only one to lower his price target, Goldman Sachs analyst Stephen Grambling reduced his price target from $6 to $4 after the announcement, and short sellers have been hovering for at least the last few weeks. J.C. Penney Company, Inc. (NYSE:JCP) has been weak for some time, but while many thought this holiday season could be its chance to really rebound, the decision to release almost no information on holiday sales clued investors into the coming disappointment, the only question being its magnitude.
J.C. Penney Company, Inc. (NYSE:JCP) may be able to stabilize by shrinking down to the profitable stores it still has in place, but it has a lot going against it: a mature business with falling foot traffic in a competitive sector under siege by online retailers like Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY).