J.C. Penney Beats, Outlook Disappoints - Analyst Blog

J.C. Penney Company Inc. (JCP) recently delivered second-quarter 2010 results that came a penny ahead of the Zacks Consensus Estimate on the heels of effective cost management.

The quarterly earnings of 6 cents per share beat the Zacks Consensus Estimate of 5 cents, and rose sharply from break-even posted in the prior-year quarter. The quarterly earnings included a 5-cent charge related to a debt tender offer completed in May 2010.

The Plano, Texas-based retailer now expects third-quarter earnings between 16 cents to 20 cents a share. The company also forecasted fiscal 2010 earnings in the range of $1.40 to $1.50, down from $1.64 per share previously anticipated, reflecting a cautious approach in an unpredictable consumer environment.

J.C.Penney's guidance fell short of the current Zacks Consensus Estimate of 24 cents for the third quarter and $1.54 per share for fiscal 2010.

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 expected sales growth between 2% and 2.5% for the quarter. Total sales were adversely impacted by 160 basis points due to the discontinuation of the publishing of Big Book catalogs. Internet sales through jcp.com grew 4% to $317 million in the quarter.

Comparable-store sales inched up 0.9% during the quarter, which again was well below management's target of 2.5% to 3% growth. In order to drive sales and improve traffic, J. C. Penney is in the midst of adding 'Liz Claiborne', 'MNG by Mango' and 'Call it Spring' brands to its portfolio.

For the third-quarter 2010, management guided total sales growth between 1% and 2%, whereas comparable-store sales growth is expected in the range of 2% to 3%.

The company said gross profit climbed 2.1% to $1,552 million, whereas gross profit margin expanded 90 basis points to 39.4%. Management expects margin to drop moderately in the third quarter.

The in-store Sephora departments continue to outperform in drawing younger and more affluent customers. During the quarter, J.C.Penney opened 22 Sephora stores, bringing the total to 215. The company plans to open an additional 16 stores by the end of the year, resulting in 231 stores at the end of fiscal 2010. The Sephora concept inspires confidence and is expected to be a significant revenue driver.

J.C. Penney ended the quarter with cash and cash equivalents of $2,003 million, long-term debt of $3,099 million, reflecting a debt-to-capitalization ratio of 38.8%, and shareholders' equity of $4,886 million. The company deployed $229 million towards capital expenditures, and generated negative free cash flows of $306 million in the first-six month of fiscal 2010.

J.C.Penney currently operates 1,107 department stores in the United States and Puerto Rico. The company also operates one of the largest apparel and home furnishing sites, jcp.com, and general merchandise catalog business.

 
PENNEY (JC) INC (JCP): Free Stock Analysis Report
 
Zacks Investment Research