J C Penney Company Inc: Questions Before Analyst Day

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J C Penney Company Inc (NYSE:JCP) is scheduled to hold its next analyst day next week Wednesday. Analysts are now building their lists of questions for the retail chain’s management, and for some, it’s quite a long list.

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Sterne Agee analysts note that a lot has happened since the last analyst day and say that they’ll be looking to hear what’s next for J C Penney now that the business appears to have been stabilized.

J C Penney comments expected to be “generally upbeat”

In a report dated Oct. 3, 2014, analysts Charles Grom, Renato Basanta and John Parke said they have several things they want to ask J C Penney management at the meeting. They’re expecting a full update on the department store chain’s strategy.


However, they note that easy comparable sales are behind the company. Also the EV suggests that EBITDA will be higher than currently modeled by many analysts. As a result, they remain Neutral-rated on J C Penney.

Looking for updates on J C Penney’s sales

The Sterne Agee team said they want to hear more about sales productivity to see whether the retail chain is making progress. Last year, the company saw sales of about $107 per square foot, but that’s still far lower than the $195 the retailer enjoyed in 2006. They want to know if management thinks that J C Penney will be able to return to that peak and what catalysts could get the company there.

They’re also wondering about the company’s store footprints, specifically in terms of declines in mall traffic. They want to know whether J C Penney plans to close underperforming stores.

In addition, they’re looking for an update on the competitive environment, like Macy’s, Inc. (NYSE:M) and Kohl’s Corporation (NYSE:KSS), and ecommerce growth. They’re also wondering what management views as J C Penney’s biggest competitive threat.

Margins, expenses and more

The department store chain has been working on getting rid of clearance items to make way for the legacy products that once drew its core customers. J C Penney has been improving the mix of private brands and seems to be controlling inventory levels, so the Sterne Agee analysts want to know what management thinks is a sustainable long term gross margin.

They’re also wondering about whether the retail chain will be able to keep the sales, general and administrative expenses per square foot close to “today’s super-lean levels.” In addition, they’re looking for an update on J C  Penney’s balance sheet, whether the company can de-risk it with another equity offering and whether it will pay down debt when it turns positive in free cash flow.

The analysts also plan to ask what management sees as a “sustainable” capital expenditure level for the company and learn more about its Omni platform.

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