Earnings Preview: J.C. Penney - Analyst Blog

J.C. Penney Company Inc. (JCP) is slated to report its third-quarter 2010 financial results before the bell on Friday, November 12, 2010. The current Zacks Consensus Estimate for the quarter is 17 cents a share. For the quarter to be reported, the Zacks Consensus Estimate for revenue is $4,227 million.

Second-Quarter 2010, a Synopsis

J.C. Penney's quarterly earnings of 6 cents a share beat the Zacks Consensus Estimate by a penny, and rose sharply from the break-even posted in the prior-year quarter on the heels of effective cost management. The quarter's earnings included a 5-cent charge related to a debt tender offer completed in May 2010.

The quarterly sales of $3,938 million, missed the Zacks Consensus Estimate of $3,999 million, and dropped marginally by 0.1% from the prior-year quarter. Management had expected sales growth between 2% and 2.5% for the quarter.

Comparable-store sales inched up 0.9% during the quarter, which was again well below management's target of 2.5% to 3% growth.

Management Guided

The Plano, Texas-based J.C. Penney expects third-quarter earnings between 16 cents to 20 cents a share. The company also projected fiscal 2010 earnings in the range of $1.40 to $1.50. For the quarter, management guided total sales growth between 1% and 2%, and comparable-store sales growth in the range of 2% to 3%. 

Third-Quarter 2010 Zacks Consensus

The analysts covered by Zacks, expect J.C. Penney to post third-quarter 2010 earnings of 17 cents a share that dovetails with management's guidance. The current Zacks Consensus Estimate reflects a growth of 54.5% from the prior-year quarter's earnings. The current Zacks Consensus Estimate for the quarter ranges between 16 cents and 20 cents a share.

Zacks Agreement & Magnitude

Of the 15 analysts following the stock, 6 analysts have lowered their projections in the last 30 days with no upward revisions. In the last 7 days, 5 analysts reduced their estimates with none raising the same. As a result, the Zacks Consensus Estimate for the third quarter dropped by a penny to 17 cents in the last 7 days.

The downward revisions in the analysts' estimates were due to the soft sales in the month of October and lower-than-expected preliminary third-quarter 2010 sales results. In October, total sales tumbled by 3.3% to $1,270 million from the comparable month last year, reflecting a decline of 1.9% in same-store sales.

J.C. Penney notified that sales for the quarter rose marginally by 0.2% to $4,188 million, but fell short of its own guidance range of 1% to 2% growth. Same-stores sales rose 1.9% as against management's target of 2% to 3% growth.

Mixed Earnings Surprise History

With respect to earnings surprises, J.C. Penney has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 8.3% to positive 20%. The average remained at 4.3%. This suggests that J.C. Penney has beaten the Zacks Consensus Estimate by an average of 4.3% in the last four quarters.

Our View

We believe that the stock will remain under pressure in the near term. Despite the introduction of new product lines, sales performance has not been impressive. J.C. Penney hinted that the discontinuation of the publishing of Big Book catalogs has adversely affected the sales. Although the in-store Sephora shops inspire confidence, a consistent improvement in the stock has yet to be witnessed.

Consequently, we have an Underperform rating on the stock. However, J.C. Penney holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

J.C. Penney, which competes with Macy's Inc. (M) and Kohl's Corporation (KSS), currently operates 1,100 department stores in the United States and Puerto Rico.