J C Penney Company Inc (JCP): Wall St Has Low Expectations

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J C Penney Company Inc (NYSE:JCP) will hold its analyst day tomorrow, and analysts are expecting to hear about cost cuts and possibly a broader store closing plan. In general though, most firms and investors seem poised for a letdown, as shares of the aging retail chain trended lower ahead of tomorrow’s event.

Looking for long-term update from J.C. Penney

In their report dated Oct. 6, 2014, Goldman Sachs analysts Stephen Grambling, Christopher Prykull and Jayati Khurana said J.C Penney management should update not only near-term trends but also their long-term plan. They want to hear what management believes will drive profitability and comparable store sales. They also want to hear more about the department store chain’s marketing, merchandising and online plans.

They don’t expect any comments on major strategies or a leadership transition going into the holiday shopping season. Also they cut their earnings per share estimates going into Wednesday’s meeting due to softer momentum in comparable sales after the back-the-school shopping season. They cited soft discretionary spending as the reason.

Projecting J.C. Penney’s turnaround efforts

The Goldman Sachs team is now looking for losses of 70 cents per share for J. C. Penney’s next earnings report. They have a Neutral rating and $7 per share price target on the retail chain.

They estimate that at the current rate, it will take more than eight years for the department store chain to once again become a more than $17 billion retailer. This is why they expect management to talk about a “plan B” to bring the company to the right size so that it can “more appropriately match sales by addressing marketing and assets.”

J.C. Penney expected to announce cost cuts

In their report also dated Oct. 6, 2014, UBS analyst Michael Binetti and his associates Steven Strycula and K.C. Stumbaugh said they think Wall Street is already expecting to hear about significant cost cuts. However, it’s unclear to them just where the department store chain will cut costs. They note that selling, general and administrative expenses are already about 31% lower than their peak in 2006, although square footage has increased by about 4.3% since then.

They suggest that J.C. Penney might announce some store closures for the near term in addition to the 33 closures the company is already planning for January. They think these store closures could be selective, however, because uncertainties about the retailer’s position remain.

For example, 75% of owned stores were already given for collateral in the 2013 loan, which means there are only 100 owned stores left. Also the proceeds from the sale of the company’s stores will be needed to pay down debt. Additionally, J.C. Penney’s costs for breaking so many leases could be very high.

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