How on earth is J.C. Penney Co., Inc. (NYSE: JCP) still in business? I would have thought this company went out to pasture long ago. Seriously, does anyone shop at this store? I think my grandmother shopped there a very long time ago, but I honestly can't remember the last time I set foot in the place. I guess some brands just never die.
OK, I'm being a bit harsh here, but you get my point. The entire retail sector is filled with way too much capacity, and while that capacity lent itself to more choices and lower prices, the flip side is that profit margins were low. What happens when times get tough? Profit margins fall even further and losses become very possible.
We are now in difficult times, and retailers are being destroyed across the board. Even before the credit crisis that began in late September, firms selling consumer goods were already struggling.
As a result, retail stocks were some of the worst performers during the first half to the year. The market crash, and subsequent brick wall impact on the economy of the financial crisis, accelerated the declines. We are now in a full-blown recession with many expecting a long and deep period of negative growth. Such a state will make it even more challenging for the retail space for the remainder of this year and beyond.
So, what do you think that means for a company like JCP?
In what most call the most difficult operating environment ever seen, JCP's business model is targeted toward my grandmother's generation. My grandmother has long passed, rest her soul, and now it seems JCP is heading in the same direction.
Today, the company announced that its profit in the third quarter fell by more than half. In addition, the company stated that mall traffic was weak this month and, as a result, they lowered future guidance. JCP expects to earn between 90 cents and $1.05 in the fourth quarter. Analysts had been expecting $1.32.
While it is entirely possible for retailers to enjoy a strong holiday season despite dire predictions, I find that outcome unlikely. I'd be surprised if JCP meets even the lower range of its guidance. JCP is sinking and sinking fast.
Shares were down some 9% on the news. This is on top of the more than 60% drop in share value over the last year. Is now the time to buy?
Not in my book.
Don't be fooled by the 4%-plus dividend. The damage here is not complete. If JCP had its future in front instead of behind it, things might be different. But JCP should be in a museum of department stores, not on the field with living, breathing players.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates JCP a C or Hold.
Jamie Dlugosch is a contributor to NavellierGrowth.com.
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Reader Comments (Page 1 of 1)
11-14-2008 @ 7:19PM
bob said...
In the past several years they have turned things around and the quality and pricing is as good as any. I also did not go in their stores for a long time, but try it again. If you would look at the last several years they have been doing great financially because people have found the improvements. Just because a chain is more than a few years old doesn't mean they should fold. This rant sounds like a disgruntled former employee. Always compare to grandparents generation when you don't like something. You cannot remember the last time you were in there but all of a sudden you feel justified condemning Penneys now. Great merchandise and pricing. This from someone that does not work for them and I don't even have a credit card from them.
11-14-2008 @ 8:09PM
PORNO THE CLOWN said...
WE, J.C.P, OLD TIMERS HAVE MONEY TO SPEND.THEY HAVE GOOD STUFF.TRY TO FIND A CASHMERE SWEATER ANYWHERE.WHE MY SPORTABOUTS START GETTING RAGGEDY, IT'S OFF TO J.C.P. I GO.
11-14-2008 @ 10:45PM
Tom from Orange County Ca said...
I must admit, I have not been there in a long time either, however; that being said, I haven't been to a Sears store in many years either. Even though I recently found out how supportive tht Sears is for its employees serving our country.
I think our world has become very harsh, very quick to forget. Now we are in a place where American brands like JC Penny's, Sears, Mervyns, GM, Ford, Chrysler, Mother's cookies, and hundreds more are on the verge of going away.
I am guilty like most, however; as I see the American worker sitting broke, unemployed, and without much of a future, I have to ask myself, what the hell are we doing ?
I am a Repulican, but I am first an American. So, we have to find ways to re-establish some good olde American patriotism, loyalty etc.
Do you think that Russia, China, the EU, or Mexico gives a rip about our way of life ? Hell no.
Boy, seems like so many people go down to WallFart and buy cheap goods made in China, or someplace like that, while our own American worker sits home with nothing to do.
The American corporate leadership or Wallstreet or whatever has really let us down.
Bring back the Sears Christmas catalog, make it illegal to put up Christmas decorations in malls until the day after Thanksgiving. Start to think about America first.
God bless America.
11-14-2008 @ 11:26PM
lewis said...
i have tried all of the so-called high end stores but find that jcp has the best variety,choice and friendly help of all. This detractor just doesn't know what he is ranting about
11-15-2008 @ 1:02AM
grace said...
Don't know what you are missing-jcp is a great store for everyone, but expecially children. You can still buy some plain clothing, instead of loud clothes in other stores. They cater to everyone.
11-15-2008 @ 2:22AM
Dave Maurer said...
I've caught on to shopping at JCP for two reasons. First, they carry some lines of quality clothing that fit me at a good price. Since I'm tall and athletic, I have a hard time finding quality shirts that fit at a low price and I've found JCP to be one of the few stores that carry clothing that fit me. Second, they barrage me with coupons and sales weekends in the mail all the time, so if I time it right, I can get 60-80% retail price on clothing there.
11-15-2008 @ 11:46AM
neuticles said...
Almost every single item they sell is from China. I quit buying from them for that reason.
11-15-2008 @ 8:45PM
Jessy Scholl said...
One look at their stores tells me that they are doing the right things and it shows. Their stores are easy to shop in and despite the stuff from China, everything is better quality and the corporation is in much better position when it comes to clothing and basically everything else that they sell. Unless if it is underwear, I have never brought any clothing from Wal-Mart, and I do not tend to do so anytime soon. I am just about to buy a new coat from Target, and I get my pants from JC Penny's. Just one more thing, I brought a collared shirt form Penny's as well. The blogger does state some facts about the stock being down about 60% and traffic being down as well, but that is the overall retail climate which will pick up this holiday season. Regardless, they have been doing brisk business and will be around long after Wal-Mart folds.
11-15-2008 @ 8:49PM
Jessy Scholl said...
I just forgot something, I am wearing a shirt that I got from Penny's for my birthday and I love it.
11-21-2008 @ 9:39PM
Linda Y Grant said...
I love JCpennys. I am a low income person and I am able to purshase cloths and gifts from them. I work for Sears years ago and always found that Pennys was a head of sears in fashions.