Is J.C. Penney a Good Turnaround Play?

It seems like J.C. Penney’s (JCP) turnaround is gathering pace as the stock has performed very well this year as compared to 2015. The turnaround is being driven by the retailer’s improving fundamentals which was evident in the latest reported quarter. In the most recent, quarter, the company reported earnings per share of $-0.05, $0.10 greater than the estimates. Revenue came in at $2.92 billion, in-line with the estimates.

J.C. Penney endures to look for solid footing as the company is recovering from its lows in 2013.
In the previous quarter, J.C. Penney’s sales surged 1.5 percent as compared to previous year and comps increased 2.2 percent as well. Throughout the prior two years, overall comps surged 6.3 percent. Moreover, the company’s comps have escalated successively every month so far in 2016. Improving same-store sales is a tailwind for company and consistent improvement should drive the stock higher.

Furthermore, the company is putting in lot of efforts to get back to profitability, as its second quarter loss was $56 million, a 52 percent decline from the loss a year before. The company’s management also detailed that it has been successfully snatching market share from other department stores.

While the company’s strategy of refreshing or repositioning old stores is working well, most of the success has been credited to the inaugural of Sephora cosmetic stores within its locations.

On the other hand, J.C.
Is J.C. Penney a Good Turnaround Play?
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Penney’s foremost rivals Macy’s (M) and Sears Holdings (SHLD) have also taken a rigid hit mainly due to the decreasing in-store sales. The declining in-store sales have forced the companies to close several stores.

Sears is the worst performing stock among these three companies, as it has terminated hundreds of stores in the last few years. Moreover, Sears also detailed that it will endure to terminate its unprofitable stores.

In the case of J.C. Penney, the company terminated 33 stores in 2014, 40 in 2015. But, J.C. Penney is performing well this year, as it closed only seven stores this year. Although the company’s debt may put off a lot of investors, I think it is moving in the right direction and should become profitable in the near future.

Conclusion

With fundamentals improving, J.C. Penney is bound to break out in the long term. I strongly believe that the company’s worst days are behind it and it can improve consistently from here on out. Thus, I think investors should buy the stock.
Published on Aug 19, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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