J.C. Penney Company, Inc. (JCP) Shows Progress, Analysts Not Convinced

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J.C. Penney Company, Inc. (NYSE:JCP) gave an update on the progress it is making in its efforts to turn things around. However, analysts from at least two firms were not very impressed. They note that although the retail chain reported improving comparative store sales, pressures on its gross margin remain.

J.C. Penney Company, Inc. (JCP) Shows Progress, Analysts Not Convinced

J.C. Penney reports several bits of good news

Goldman Sachs analysts Stephen Grambling and Christopher Prykull remain Neutral rated on J.C. Penney Company, Inc. (NYSE:JCP). They see potential upside to the company’s comparative store sales, but they believe gross margins could be worse than they expected.

The department store chain reported comparable store sales of negative 9.8 percent in August and negative 4 percent in September. It also reported that sales on jcp.com rose 10.8 percent in August and 25.3 percent in September. It said conversion improved in-store and online during September. Traffic trends also improved, including positive off-mall traffic in the last two weeks of September. However, off-mall traffic is still a challenging area for the company.

Its home trends are still weak because customers don’t appear to be accepting the company’s new price points and merchandise. J.C. Penney Company, Inc. (NYSE:JCP) estimates that year-end liquidity to be more than $2 billion, including the net proceeds of $785 million from its recent equity offering.

J.C. Penney’s comps and margins

According to the Goldman Sachs analysts, if the company’s comps continue improving in October, its third quarter comp could be down 5 percent rather than the negative 7 percent they were expecting. However, they expect to see greater pressure on gross margins, especially because of remaining challenges in the company’s home department.

The analysts note that since expectations for J.C. Penney Company, Inc. (NYSE:JCP) continued to drift lower recently, they believe the company’s shares could react positively to the comp improvements. They expect to review and possibly adjust their estimates for the company after management provides more information.

The cost of better sales at J.C. Penney

Analysts at BMO Capital Markets also provided analysis of J.C. Penney’s recent update. Wayne Hood, Shannon Coyne and Gabe Lembeck have kept their Underperform rating and $7 per share price target on the company. They note that although sales at the company are better, they wonder about the cost of the progress.

The BMO analysts said they aren’t surprised that J.C. Penney Company, Inc. (NYSE:JCP) saw better sales after reintroducing promotions. However, like Goldman Sachs analysts, they remain concerned about gross margins. They’re expecting to see a sequential improvement in the decline in gross margins for the third quarter, but they “have no confidence” in their estimate because of the “increased promotional environment.”

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