J.C. Penney Company, Inc (NYSE:JCP) wise, pound foolish, Macy’s, Inc (NYSE:M)
J.C. Penney Company, Inc (NYSE:JCP) has been a troubled department store operator for quite some time now. Some leading analysts but have saddled it with a buy rating and a price target of $23. This is around 30% over its very recent trading range. This valuation is probably based on a long-term view that by 2017, the company will have earnings per share of $2. This implies that JCP will almost replay its 2010 adjusted EPS of $2.16. This was what it was before the thunderstorm hit the company. However, even from a long-term standpoint, J.C. Penney doesn’t really seem to be a very attractive deal. Even prior to all the Ron Johnson missteps, the company had been cowering under pressure.
Mid-price, no rise
These days, the mid-price department store is not really an ideal business proposition as so many other companies in the same segment will attest. In addition to that, the company has taken on new debt to the tune of billions of dollars, to fund its operating losses and capital expenditures. This has resulted in an addition of more than $100M of annual interest payments. Trying to regain the $5B in sales that the company has lost over the past 6 quarters might just take it much more time that it can afford which automatically raises the possibility of an eventual bankruptcy restructuring. Investors should be cautious and re-look at the company with a keener sight.
Maybe the company can pick up a few tips from Macy’s, Inc (NYSE:M). The latter has displayed a great deal of resilience. It must be understood that though both, JCP and Macy’s belong to the same industry, the segments that they operate in are distinctly different. To a certain degree, Macy’s, Inc (NYSE:M)’ out-performance must be attributed to the affluent customer base that it has. Generally, Macy customers’ income levels are above that which most other department stores have. Despite this, investors may harbor fears that same-store sales will eventually recede, after rising by almost 5% annually, since 2010.
However, for a company that has always managed to reinvent itself and re-invest in its brand, investors can be more optimistic about it. The company is introducing active apparel through a Finish Line Inc alliance. In addition, the company will also be focusing on its omni-channel. This should help it increase inventory turnover, avoid markdowns as well as increase sales follow-through.