J.C. Penney Needs a New Strategy Quickly: Credit Suisse

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Analysts express worries that J.C. Penney Company, Inc. (NYSE:JCP) is facing a crisis, after the company posted a disappointing financial performance during the third quarter. Ron Johnson, chief executive officer of J.C. Penney Company, Inc. (NYSE:JCP), implemented a new strategy to boost the company’s sales in order to prevent further difficulties.

J.C. Penney Needs a New Strategy Quickly: Credit Suisse

During the third quarter, the company’s sales plunged by 27 percent and reported an earnings loss of $0.93 per share, lower than the $0.11 per share consensus expectations of Wall Street analysts.

Johnson’s new strategy helps consumers easily compare prices of products, by indicating the “suggested price” with the actual “retail price” for them to see the real value or savings in purchasing a product. In addition, Johnson also implemented a series of promotions and set aside his no-coupon rule.

Vicki Young of Women’s Wear Daily noted that J.C. Penney Company, Inc. (NYSE:JCP)’s “shop-in-shops” are doing well, but they won’t be completed until 2015. According to her, the core business of the company needs a turnaround strategy.

According to Johnson, the weak financial result of the company during the third quarter was a learning experience. He said, “But the real lesson to me was that the customer, not just outside of the store, needs to understand the value. When they walk through the store, they want to understand the value of what they buy.”

Brian Sozzi, chief equities analyst at NBG Productions, speculated that the company might need additional cash to continue is business operations. He said, “J.C. Penney Company, Inc. (NYSE:JCP) may have to raise capital, or consider removing itself from the public markets (getting certainty of value for shareholders instead of staying public and hoping the turnaround brings to surface unrealized value).  According to him, the capital structure of the company is troubling, and consumers are confused with the changes in the company. He pointed out that the sales gains of the company in shop-in-shops were not enough to compensate J.C. Penney Company, Inc. (NYSE:JCP)’s revenue losses from the majority of its business segments.

Meanwhile in a research note to investors, analysts at Credit Suisse Group AG (NYSE:CS) wrote, “Time is no longer on J.C. Penney’s side, and going into the fourth-quarter and beyond, we are concerned that J.C. Penney’s technological overhaul of both its back- and front-end systems could serve to create an even-more-challenging internal environment than is the case today. J.C. Penney must find a way to significantly slow the sales decline within the next six months, and if it doesn’t, management’s attempt to bet the company could become more problematic.”

The analysts expect J.C. Penney Company, Inc. (NYSE:JCP) to generate a minimal amount of EBITDA in 2012 and 2013, citing the fifth quarterly operating loss and dwindling cash position of the company. They lowered their FY12E EPS from to ($1.40) from ($0.98) and FY13E EPS to ($0.80) from ($0.06), due to much weaker top line expectations. lower gross margin, and increased SG&A de-leverage. The analyst also lowered their target price for J.C. Penney Company, Inc. (NYSE:JCP) stock from $25 to $15 per share, and downgraded their rating from “neutral” to “underperform.”

J.C. Penney Needs a New Strategy Quickly: Credit Suisse

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