Wall Street not impressed with Penney’s positive news
It’s been a long time since J.C. Penney posted positive same-store sales numbers for a quarter. So you might think after having achieved an increase for the first time since the quarter ending July 2011 that analysts and investors would be more pleased with the news. Instead, Penney’s two percent gain was seen as a disappointment and the company’s share price fell 11 percent by the close of trading yesterday.
Analysts, surveyed by Bloomberg News, were looking for Penney’s comp numbers to be up 4.1 percent.
"For comparable sales to be up two percent just underscores how challenged J.C. Penney is," Imperial Capital analyst Mary Ross-Gilbert told Bloomberg. "In this competitive environment, it shows how tough it is to regain lost share."
"While 2013 brought a lot of change and challenges to JCPenney, the steady improvements in our business show that the company’s turnaround is on track," Penney CEO Myron "Mike" Ullman said in a statement. "In spite of the significant headwinds facing all retailers this season, including unprecedented harsh weather conditions in many parts of the country, we delivered on our promise to generate positive comparable store sales growth in the fourth quarter."
Discussion Questions
Do you see Penney’s 2 percent quarterly gain as a positive sign or do you share Wall Street’s disappointment? With a positive quarter under its belt, what must J.C. Penney do next to expand its reach and grow market share?
I hadn’t been to a gym for years up until last week. I can now do 2 more chin ups than when I started. Does that mean I’m in shape? I wish!
2% over what were dismal numbers is nothing to celebrate. Better? Yes. But just like me, JCP is still badly out of shape.
A 2% comp store increase after years of decline by itself is not sufficient to declare victory. Two quarters of increase would indicate the changes being made are working, assuming the profit margin is not compromised. A 4.1% analysts’ expectation was unrealistic to begin with. Total industry forecast for the holiday was lower, and there is this thing called the internet which continues to take sales away from stores. Until we see more, this is another example of a company having a good quarter, but analysis having unrealistic expectations.
Frank Dell shamelessly plagiarized what I was about to say. Spot-on, Frank! 😉
I’m still hesitant to share Mike Ullman’s belief that the turnaround is “on track.” The high-level category results suggest the retailer still doesn’t have its fashion mix quite right. J.C. Penney highlighted activewear, outerwear, sweaters and boots among its better-performing categories during Q4. But, it’s these categories that tend to be staples purchased during mission-oriented shopping trips rather than ego-intensive trend-based categories, which drive trip frequency and margin-augmenting impulse buys.
This is a sign of weakness. We probably had a combined 3% in inflation and population growth. If your stores sales did not grow by at least 3% you actually lost market share. What must J.C. Penney do? The answer is to grow more than 3% to have a gain in share. It’s also nice if they can combine that with making a real profit. Since JCP has become an ineffectual competitor, it’s unlikely that will happen.
I would agree that a 4.1% target comp gain was a pretty steep hill to climb, even if it was up against pretty weak prior-year numbers. But the real issue here may be that one data point doesn’t make a trend. This company has been so beaten down, deservedly so, it’s likely to take a series of quarterly increases before people believe it’s real and not just a mirage.
The forth quarter results for Penney’s will not reverse this fiscal or financial year’s failures without a lot of financial razz-ell dazz-ell. These results must be real and maintained over the next year or two with a noticeable decline in company debt and increasing net profits for investors to regain interest and make stock recommendations and purchases. It is about the profit and loss statements, not the press statements. At present, Penney’s financials are a mess and have been for several years. Business investors don’t waste time searching for who, how or why reasons, they are constantly looking for winners and monitoring their portfolios for any sign of trouble that needs to be addressed.
It’s a long way to Tipperary(?) as the song says. And it is a long road back for Penney’s. This is a good sign. But breaking even would also have been a good sign after so many dismal quarters. Don’t lose your senses because Penney’s posted one good report.
I think George Orwell – the author and well-known commenter on the retail industry – would described this news as “unbad”…which aptly conveys all the excitement (or lack of same) that accompanies that term.
Positive sign? Is “losing less” than before or versus competitors a sign of winning? It is better than being DOWN versus a comparable baseline – however, it is not time for a parade just yet. Do it another time or two consecutively and it is fair to begin to say that things are looking positive. For now, it is better than what had been their trend and seems to have slowed, if not stopped the bleeding.
The last time I was at the mall it was packed…well except inside JCP. Too bad, because the store looked good and the staff was quite helpful. It just reminds me of how bad things got under Ron Johnson.
That’s a pretty big hole that got dug, and as long as it stays positive they’re at least heading the right direction. Whether it’s enough to get out of the hole is another story.
I’m reminded of Mark Heckman’s excellent topic from Monday regarding how to measure retail success. In Mark’s discussion article, Irish grocery retailer Feargal Quinn was referenced as treating customer count as his first sales metrics consideration. I wonder if JCP enjoyed an increase in customer count in the last quarter.
JCP can’t fight the traditional, street-based sales metrics that historically guide investors. But internally, where their strategic measures and priorities are being measured, I’m hoping that customer count is high on that list.