J C Penney shares edged upward today after Piper Jaffray analysts reiterated their Overweight rating and $22 per share price target on the department store chain’s stock and said it continues to be one of their top picks. They spoke with CFO Ed Record and Trent Kruse of Investor Relations on Monday about a number of topics like savings in selling, general and administrative expenses and the $375 million in capital expenditures that are expected for this year.
SG&A expenses to fall this year
Analysts Neely J.N. Tamminga and Kayla R. Wesser note that J C Penney’s selling, general and administrative expenses in the fourth quarter came in better than expected and said management expects this metric to decline again. The retailer plans to spend less on advertising and is improving store processes to cut expenses. During the fourth quarter, ad dollars fell, while ad impressions climbed, and these trends were continuations of what they saw throughout last year. Management plans to continue these trends this year by relying on better analytical data and improved targeting.
They also intend to focus the bulk of their $375 million in capital expenditures in the digital channels, plus rolling out more Sephora locations and more center core remodels. While this is an increase from last year’s $300 million in capital expenditures, the Piper Jaffray team believes this is still lower than the possible long-term target of between $400 million and $450 million.
J C Penney drives toward profitability
J C Penney has also been targeting profitability this year and aims to hit at least $1.2 billion in EBITDA across sales, gross margins and expenses. Management is targeting a 3% to 4% increase in same store sales for this year and plans to execute several strategies in multiple areas like omnichannels, private brands and revenue per customer.
The Piper Jaffray team said most investors have been focused on whether J C Penney can continue to outperform. Although they didn’t learn many new things in their meetings with management this week, they point out that there are “many paths to profitability” for the department store chain to take, and they like management’s strategies to achieve their goals.
J C Penney stock edged upward by 11.78% to $11.42 per share in afternoon trading today.
