J.C. Penney Earnings Amid Q2 Weakness in Retail

The J.C. Penney earnings report (NYSE:JCP) will be released tomorrow, August 11, 2017, at 7:30 a.m. ET. Following the earnings report, the company's earnings call begins at 8:30 a.m. ET, and you can register for the webcast here. According to Nasdaq, analyst consensus for J.C. Penney Company is $ -.06 EPS on revenue estimates of $2.84 billion. In the second quarter last year, the company reported EPS of $ -.05. We will update this article once JCP reports earnings.

Update: J.C. Penney reported adjusted EPS (Non-GAAP) of $ -.09 on revenue of $2.96 billion. Same-store sales fell 1.3% versus estimates of a 1.2% decline. In addition, JCP stock fell 16.56% by market close on Friday. J.C. Penney's CEO made this statement regarding the earnings release:

While broader retail remains challenged, we are encouraged by the improved performance in our total apparel business, including a significant acceleration in kids' apparel. Nearly all categories delivered improved sales results during the quarter, with our growth initiatives in beauty, home refresh and omni-channel continuing to deliver positive sales growth.Marvin Ellison, CEO of J.C. Penney

Over the past year, JCP stock lost roughly 50% of its value. Since the beginning of this year, shares are down about 40%. Interestingly, shares of J.C. Penney fell more than 8% in trading today, but they regained 2.55% in after-hours. It appears market participants expect J.C. Penney earnings to miss expectations given today's price action.



 

Will J.C. Penney Earnings Follow Suit of Other Retailers?

Given the weak second-quarter earnings data competitors of J.C. Penney reported, sluggish sales appear to be an industry-level problem. For instance, Nordstrom (NYSE: JWN) narrowly beat earnings and revenue expectations, but its stock still fell due to declining EPS. Similarly, Macy's (NYSE: M) reported a double-digit decline in EPS coinciding with a moderate decline in revenues. Last, Kohl's (NYSE:KSS) and Dillard's (NYSE:DDS) reported laggard earnings metrics, resulting in declines of 5.84% and 17% respectively.

Remarkably, a couple of J.C. Penney's competitors actually beat analyst expectations. However, those stocks were still punished during market trading hours today. Retail stocks currently face relentless pressure from the overall market's bearish price action. Furthermore, continuous fears over the future of retail are at the forefront of all department store shareholders. 

JCP Stock Rating

Due to the factors discussed in this article, The Stock Trader Blog is adding J.C. Penney to its Bearish List. Our opinion is a pairs trade between J.C. Penney (short) and Kohl's (long) offers the best risk:reward coefficient. As far as J.C. Penney goes, positive, annual GAAP net income is nonexistent, shareholders do not receive a dividend, over 100 stores have closed this year, and the technical indicators on JCP stock inherently limit any positive earnings surprise this quarter.

On the other hand, Kohl's is conservatively financed, it pays a 5.5% dividend, and it has positive GAAP net income ($556 million in 2016). A long position in Kohl's mitigates the risk of a retail-rebound or a continued uptrend in the overall market. Therefore, Kohl's will be added to the Bullish List.







Eric Bruin

Eric Bruin

Founder. Kelley School of Business ’17. Write about stocks and business news. Contact for business inquiries or to write articles for The Stock Trader Blog.

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