Dump J.C. Penney Despite Strong April Retail Sales

Last week, I warned investors to stay away from J.C. Penney (JCP) or short the stock. I cited that amid the weak retail sales environment, J.C. Penney is not a turnaround play that investors should have in their portfolio. Given the growing competition in the retail space, domination of online retailers, and J.C. Penney’s financial situation, I have been bearish on J.C. Penney for a few years now and I still wouldn’t recommend buying the stock.

J.C. Penney’s latest quarterly report further highlights the fact that the retailer is struggling and its turnaround is still way off track.
For the reported quarter, J.C. Penney’s EPS came in at -$0.32, beating the consensus by $0.06. Although the company exceeded bottom-line estimates, the beat wasn’t that impressive as it was an outcome of cost-cutting.

Sales is what really matters and J.C. Penney disappointed on this front as its sales fell 1.7% year over year. J.C. Penney reported revenues of $2.81 billion, missing the analysts’ estimates by $110 million. Although the company is maintaining full-year comp sales guidance of positive 3-4%, shares tanked 15% due to the company slashing gross margin guidance.

Brick and mortar retailers are facing a tough time as online retailers are eating their lunch. While the likes of Amazon (AMZN) has grown in sales, retailers like Macy’s (M) and Kohl’s (KSS) reported one of the worst quarters in many years.

While the April retail sales numbers may provide some relief to J.C. Penney longs, I wouldn’t be so confident going forward. There could be many reasons why April retail sales recorded the best sequential growth since the Great Recession like cheaper oil and people getting tax returns. However, the presence of online retailers is a long-term threat to brick and mortar retailers, which is why I would suggest investors to avoid the stock.


Betting on the turnaround of a retailer is an extremely risky investment in the current environment. Although April retail sales came in way ahead of the consensus, investors should stay clear of J.C. Penney for the time being. In my opinion, J.C. Penney has fallen too much to be considered a compelling short, but investors should still sell the stock due to the concerns highlighted above. Although J.C. Penney has done well under the new CEO, the stock will most likely struggle in the foreseeable future.
Published on May 16, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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