J C Penney Company (JCP) Has Limited Options: Evercore

J C Penney Company (JCP) Has Limited Options: Evercore

J C Penney Company (JCP) is still got a ways to go, after several years of failed revamping of the company’s image and sales tactics.  The continuation of the carnage can be thanked in part to former Apple executive, Ron Johnson’s failed plan to turn the company around.  J C Penney certainly is attempting to get back to its roots and help revitalize the business in the eyes of the consumer before it is too late.  According to Evercore, J C Penney is using its store at the Stonebriar Center in Frisco, Texas as a “test store” to help see if a new method of displaying merchandise will be effective across all its stores in the US.  A couple of the key changes to the “test store” is a separate section of store for clearance items, women’s shoes are together with other women’s items, creating a women’s full service department.  Men’s shoes were also placed in men’s section, and comparable items are placed together, rather than brands put together (all coffee makers together, all pans together, etc).  Additionally, J C Penney created a sunglasses dedicated kiosk and upgraded its purse display methods.

Evercore sees J C Penney overvalued when looking at sales and profit figures

Evercore currently has J C Penney rated as a “sell” with no official target price, but research company does have a base case of $5 for the company.  Evercore does see a few potential catalysts for J C Penney.  For one thing, over the past three years, J C Penney has seen over 33% of its sales vanish, meaning that there are a lot of consumers with demand for brand names on the sidelines.  Next, Evercore sees recovery momentum as a key for the company to ultimately survive, but also as a return to higher profits.  On the downside, Evercore sees problems with J C Penney in that its business tends to be seasonal.  This affects demand, inventory, etc, not to mention even the weather could be a potential headwinds for sales.  Next, Evercore is very concerned with J C Penney’s debt levels, which are pretty high.  This makes J C Penney very vulnerable if the economy falters or if sales continue to be weak.  Lastly, Evercore sees competition as another headwind for J C Penney, as other retailers use more savvy techniques and sales tactics to bring in customers.

Limited options for J C Penney remain

Evercore additionally notes that J C Penney is backed against the wall when it comes to asset sales.  Unlike Sears (SHLD), J C Penney does not have much assets that would be worth selling or exploring via asset sale.  This certainly puts pressure on management because there is a limited approach that they must take to recovery.  The can not focus on asset sales to reduce costs, instead they must revamp their image and try to get customers to come back to the brand.  This is certainly another issue for an already crowded, competitive industry.

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J C Penney is certainly walking a fine line at this point.  The company is continuing to survey its options to help recover the business, but several headwinds continue to block progress.  Additionally, with sluggish US retail sales figures over the past several months, it shows that the consumer is a little timid and worn out right now, not good for J C Penney.  Currently, as of January 31, 2015, J C Penney had listed on its balance sheet total cash of $1.32 billion and total debt of $5.42 billion.  This alone is a very serious headwind and management needs to reign in the company’s massive debt if they are going to have a chance to survive.

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