New CEO + Opportunities To Expand Margins at JC Penney

• Shares of J C Penney Company, Inc. JCP rose 10.64 percent through the week of August 24.
• Analyst Paul Trussell of Deutsche Bank upgraded the rating on JC Pennu from Hold to Buy, while raising the price target from $10 to $12.
• Expressing optimism regarding the new CEO, Marvin Ellison, Trussell mentioned that there was significant upside to the stock via various comp and margin expansion opportunities.

According to the Deutsche Bank report, “New CEO Marvin Ellison is now driving the next step of applying the science of retail to bring JCP up the curve in pricing and markdown optimization, supply chain, leveraging IT, and reducing corporate redundancies.”

Trussell believes that there are margin expansion opportunities available for the company that could help achieve an EBITDA of $1.2 billion with “only moderate comp growth.”

The management expressed confidence that the company possesses the right assortment to cater to all segments of the fashion pyramid, especially due to private label offering gaining traction after their relaunch and inventory levels being right sized for key items.

“Early reads on the improved footwear presentation (completed late July) and initial results from the center core pilot last spring are encouraging. We were impressed with the InStyle salon on our recent store tour,” Trussell said, while mentioning that Sephora is still driving growth, although it has been eight years since its launch.

Some of the opportunities that lie ahead for JC Penny include cross-merchandizing, online purchases that can be picked up in-store on the same day, as well as a revamped loyalty program. “JCP is also streamlining advertising and taking a hard look at corporate overhead,” the report stated.