JCPenney (NYSE: JCP), a mall retailer that competes with Macy's (NYSE: M), Sears Holdings (NASDAQ: SHLD), and Kohl's (NYSE: KSS), reported Q2 earnings on Friday. How were they? They were exactly how you'd expect them to be in this environment: not so good.
Net income did beat expectations, though. According to Bloomberg, the company made 0 cents per share, but that was enough to win the analyst game since the call was for a loss of a penny per share. Total sales, however, decreased almost 8%, and same-store sales plunged well over 9%.
Here's some more depressing news for those who own a piece of this company: guidance missed Wall Street estimates. Shares of JCPenney sold off on Friday by over 6%. The market really pays attention to the outlook, so traders weren't in the mood for a less-than-acceptable forecast.
I'm sure the shorter-term players were happy to find an excuse to sell. JCPenney's stock has performed strongly so far this year. Probably too strongly if you ask me. I don't control the tape, though, so it doesn't matter what I think. Of course, a lot of retailers have done well this year. Those investing in them are betting on the recovery.
If you look at the press release, you'll see that the balance sheet and the statement of cash flows seem decent for JCPenney. The thesis is that, once the economy turns, the chain will ultimately rise again, reporting excellent profit growth. In theory, the stock will then reflect the new prosperity and reward patient shareholders. Joseph Lazzaro recently wrote a piece discussing the bull case for JCPenney, one based on both valuation and the idea that management will adequately adjust to the changing landscape of consumer confidence.
Because of Friday's price action, I'd be careful about initiating a position in JCPenney. Wait at least a few sessions to see if the shares can bounce back. If they do, then trading the year-to-date momentum might be worthwhile. I understand the concept of buying many of these retailers ahead of the recovery. Nevertheless, I'm still turned off by some of the fundamentals. Ergo, I simply cannot wholeheartedly endorse buying in this sector right now. We'll see how things evolve.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
8-16-2009 @ 5:54PM
gerald said...
Stay away from JcPenny and Sears they both relied on customers using their high interest credit cards to pay for their highly over priced merchandise and that can only lead to poor sales. I have been in both stores to look around in the last two years. I have made many trips to both and one things is clear they both need new management that has a clue and that sales will continue to slide. Sears owns Kmart and have you seen their inventory and lack of positive growth sales lately its bad trust me. The Kmart where I live for example has about 20 cars in the lot when the Walmart up the street has no less than 250 at any time of the day. Kmart is done when their credit lines dry up bankruptcy is coming.