J.C. Penney Company, Inc. (NYSE:JCP) may finally have hit bottom, which means things could be about to turn around, according to analysts at Gilford Securities. They think the retail chain has finally stabilized and note a few positives about the embattled department store giant in the wake of last week’s earnings report.
Seeing confidence in J.C. Penney
Analyst Bernard Sosnick said he has new confidence in J.C. Penney Company, Inc. (NYSE:JCP) after management guided for a 3% to 5% gain in same-store sales for the current quarter. He notes that the guidance came after one month of the quarter was mostly over, which means that management seems confident they will be able to see that gain.
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The analyst notes that J.C. Penney Company, Inc. (NYSE:JCP) also now has a better assortment of jewelry and that reception of the re-launch of intimate apparel brand Ambrielle has been positive. He said this likely contributed to positive outcomes for Valentine’s Day shopping.
Private brands play a role in J.C. Penney’s success
Ambrielle is a private brand, which is important for J.C. Penney because before Ron Johnson became CEO, private brands contributed more than half of the company’s sales. They dropped to 30% after he took over the reins, but Sosnick believes that J.C. Penney’s merchandise assortment is “getting back to normal” and that “extreme clearance markdowns should be a thing of the past.”
The analyst believes that J.C. Penney Company, Inc. (NYSE:JCP) will be able to run more effective promotions now that it is bringing private brands back. However, he does expect business to be choppy, showing weakness when there aren’t any promotions and being stronger on major shopping dates.
J.C. Penney’s home department starts to recover
He also suggests that the 45% increase in online sales in January could signal stronger direct business sales and stores. He noted that home products made up more than half of the company’s online sales and that as assortments of home products improved online, sales surged as well.
J.C. Penney Company, Inc. (NYSE:JCP) will finish its home department makeover in about a week, getting back to the types of products its customers typically respond to. He notes that last year, the retail chain’s home departments were mostly shut down to be reconfigured. As a result, comparing against last year should bring “a sales pop,” making the 3% to 5% target seem attainable.
Challenges remain for J.C. Penney
Sosnick notes that although gross margins are approaching the level they were at in 2011, there are some other issues to be concerned about. He said expenses “should lever” while the company’s sales increase. However, he also notes that sales per square foot are “still at a distress level” at around $100. He also notes that although traffic in stores is improving, it isn’t positive yet.
In spite of these challenges though, he thinks the worst is over and has reiterated his Buy rating on J.C. Penney Company, Inc. (NYSE:JCP).