In the latest developments with J.C. Penney Company, Inc. (NYSE:JCP), Gilford Securities released an investment report on the company last Friday, and it makes a convincing argument that J.C. Penney has bottomed out and a good chance for a turnaround story to develop over the next few months. Lead analyst Bernard Sostick point to a strong Valentines Day performance and the return of private brands as two positive signs auguring a turnaround for the troubled retailer.
In related J.C. Penney Company, Inc. (NYSE:JCP) news, Bloomberg is reporting that company spokeswoman Kristin Hays said today that the struggling retailer will not be releasing monthly sales data “any time soon.” She added that the the company does plan to provide sales updates on a regular basis throughout the year.
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Importance of private brands
The Gilford report focuses on the return of private brands such as Ambrielle lingerie having the potential to be a major boost in J.C. Penney Company, Inc. (NYSE:JCP)’s turnaround efforts. Sostick explains his argument below.
“Private brands that contributed over 50% of sales in pre-Johnson days fell to 30%. Rebuilding private brands boosts gross margins and sales prospects. The merchandise assortment is getting back to normal. Extreme clearance markdowns should be a thing of the past.
The return of private brands puts Penney in a position to run promotions more effectively, with bigger percent-off attention grabbers.”
Sostick also notes that J.C. Penney Company, Inc. (NYSE:JCP) Home departments, which have been closed down for reconfiguration for some months, will be reopening this spring, and that should also give sales a boost.
Risks remain for investing in J.C. Penney
In concluding his report, Sostick also highlights a number of risks to investing in J.C. Penney Company, Inc. (NYSE:JCP).
“JCP’s financial condition cannot be considered secure unless a turnaround occurs. Achieving the year-end financial liquidity target will be critical to the outlook for the company and its stock price.
We believe J.C. Penney has the potential to complete a turnaround. But the intensity of competition and uncertainty in the consumer sector of the economy make it difficult to achieve a turnaround. Until the company has begun to turn around, we cannot reliably estimate earnings.
Given the abysmal performance of the Board of Directors in recent years, we cannot be certain that it will steer the company properly, despite addition of two directors with deep experience in retailing.
How long Mike Ullman will remain Interim-CEO is uncertain. His appointment as Chair of the Dallas Federal Reserve entails responsibilities when Penney needs focused and intense leadership.
Acceptance of a role at the Fed might indicate that Ullman’s departure from Penney is imminent.If a new CEO is appointed we cannot be certain that the person will have the experience and wisdom required to guide Penney to sustained profitability.
Investors in J.C. Penney Company, Inc. (NYSE:JCP) need to have the ability and willingness to accept considerable risk.”