Earnings Preview – J. C. Penney - Analyst Blog

J. C. Penney Company Inc. (JCP), a leading retailer of apparel, footwear, accessories, fashion jewelry, beauty products and home furnishings, is scheduled to report its second-quarter 2010 financial results before the bell on Friday, August 13, 2010. The current Zacks Consensus Estimate for the quarter is 5 cents a share.
 
First-Quarter 2010, a Synopsis

J. C. Penney posted first-quarter 2010 results on May 14, 2010. The quarterly earnings of 25 cents a share remained in line with the Zacks Consensus Estimate but jumped more than twofold from 11 cents delivered in the prior-year quarter. 

Total sales for the quarter under review rose 1.2% to $3,929 million driven by comparable-store sales growth of 1.3%. J. C. Penney notified that shoes and handbags, men's and children’s items were the top-performing categories.

Zacks Consensus Agreement

A negative sentiment is palpable among the 15 analysts covering the stock, following the sales results for second-quarter 2010 that breached its own guidance. In the last 7 days, 8 analysts lowered their earnings estimates for second-quarter 2010, and 5 analysts slashed their estimates for the third quarter. For fiscal 2010, 7 analysts cut their earnings forecast, and for fiscal 2011, 10 analysts lowered their estimates.


J. C. Penney’s second-quarter sales came in at $3,938 million, down 0.1% from the prior-year quarter. Management had expected sales growth between 2% and 2.5% for the quarter. Sales for the month of July also dropped 2.8% to $1,161 million. Moreover, the company posted comparable-store sales growth of 0.9% for the quarter, which again was well below management’s target of 2.5% to 3% growth. Comps for July tumbled 0.6%.

Consequently, J. C. Penney now expects second-quarter 2010 earnings to be at the lower end of the guidance range of 5 cents to 8 cents a share.

Zacks Consensus Magnitude

A downward pressure is apparent in the Zacks Consensus Estimate, which has been witnessing a fall in the last 7 days. The current Zacks Consensus Estimate for second-quarter 2010 is 5 cents, which has dipped 4 cents in the last 7 days. The estimates in the current Zacks Consensus for the second quarter range from a low of 5 cents to a high of 6 cents a share.

Management at its first-quarter 2010 earnings call forecasted fiscal 2010 earnings to be $1.64 per share. But the current Zacks Consensus Estimate for fiscal 2010 is $1.56, which has dropped 4 cents in the last 7 days. For fiscal 2011, the current Zacks Consensus Estimate is $1.96, reflecting a fall of 12 cents. 


Zacks Earnings Surprise History

With respect to earnings surprises, J. C. Penney has traversed a wide range of earnings expectations over the last four quarters from a negative 8.3% to a positive 100%. The average remained positive at 31%. This suggests that J. C. Penney has beaten the Zacks Consensus Estimate by an average of 31% 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, the company's sales performance has not been impressive. J. C. Penney hinted that the discontinuation of the publishing of Big Book catalogs in November 2009 has been adversely impacting sales. Sales for July were negatively affected by 200 basis points from the discontinuation of the catalog. We expect a negative sentiment among investors, following the sales results for the second-quarter 2010 that breached its own guidance. Moreover, the company’s sales of home products have remained sluggish for the last few years. This may weigh upon the company’s overall results. However, the Sephora concept inspires confidence, but a consistent improvement in the stock is yet to be witnessed. 

Consequently, we prefer an Underperform rating on J. C. Penney. Moreover, our Zacks #4 Rank, which translates into a short-term ‘Sell’ rating, correlates with our long-term recommendation.