J C Penney Company Inc (JCP) Announces Q1:17 Results; Shares Fall


J C Penney Company Inc (NYSE:JCP) announced financial results for its fiscal first quarter ended Apr. 29, 2017.

Marvin R. Ellison, Chairman and Chief Executive Officer said, “We continue to make encouraging progress in the Company’s competitive and financial position despite our top-line performance during the first quarter. While February was a very challenging month for JCPenney and broader retail, we are pleased with our comp store sales for the combined March and April period, which improved significantly versus February.  The recent sales trends, combined with the improvement in women’s apparel and our growth initiatives led by Sephora inside JCPenney, jcp.com and major appliances, provide us with the confidence to maintain our sales guidance for the full year.  Additionally, our investment in pricing and merchandising systems allowed us to deliver a 10 basis point increase in gross margin over last year, in light of the growth in appliances and e-commerce.  Also, through our de-leveraging efforts and improved financial condition, we earned yet another credit rating upgrade this quarter.  Our teams remain committed to executing on our strategic growth initiatives, and we are confident in our ability to drive sustainable growth and long-term profitability for JCPenney.”

The Company reported net sales of $2.7 billion in the first quarter of 2017 compared to $2.8 billion last year.  Comparable store sales were (3.5) % for the quarter.

Home, Sephora, Fine Jewelry and Salon all comped positively, and were the Company’s top performing divisions during the quarter. Geographically, the Southwest and Southeast were the best performing regions of the country.

For the first quarter, gross margin was 36.3 % of sales, an increase of 10 basis points compared to the first quarter last year.  Gross margin was positively impacted by improved selling margins throughout the quarter, which was partially offset by the continued growth in the Company’s online and major appliance businesses.

SG&A expenses for the quarter declined $29 million to $843 million, or 31.2 % of sales.  These savings were primarily driven by lower marketing, store controllable costs and incentive compensation.

For the first quarter, the Company’s net loss was $180 million, or ($0.58) per share.  This includes the following items:

  • $220 million, or approximately ($0.71) per share, of restructuring charges associated with our store closing announcement and voluntary early retirement program;
  • $17 million, or approximately $0.06 per share, of benefit from the tax impact from other comprehensive income allocation and other; and
  • $4 million, or approximately $0.01 per share, of benefit from primary pension plans.

Adjusted net income improved $116 million, or $0.38 per share, to $0.06 per share for the first quarter this year compared to a net loss of $97 million, or ($0.32) per share, last year.  Adjusted net income for the first quarter of 2017 and 2016 includes the sale of operating assets, which totaled $117 million and $8 million, respectively.  A reconciliation of GAAP to non-GAAP financial measures is included in the schedules accompanying the consolidated financial statements in this release.

EBITDA was $40 million for the first quarter 2017 compared to $176 million for the same period last year.  Adjusted EBITDA for the quarter improved $102 million or 67 % to $255 million compared to the first quarter last year.

Inventory at the end of the first quarter 2017 was $2.95 billion, an increase of 0.8 % compared to the end of the first quarter last year.  Approximately 300 basis points of the increase was driven by floor samples for appliance showrooms and higher inventory levels to support the Company’s continued investment in new Sephora shops.

The Company completed the sale of its Buena Park distribution facility in March for a net sales price of approximately $131 million and recorded a net gain of approximately $111 million in the first quarter associated with the sale of this facility.

Cash and cash equivalents at the end of the first quarter were $363 million.  During the quarter, the Company utilized available cash on hand to retire $220 million of outstanding bonds that matured in April.  As previously announced earlier this week, the Company launched cash tender offers to purchase up to $300 million aggregate principal amount on portions of its 2018 and 2019 outstanding bonds.  The Company ended the quarter with a liquidity position of approximately $2.4 billion.

In March, Standard & Poor’s Rating Services upgraded the Company’s credit rating one notch to B+ and affirmed their positive outlook on the Company. 

Outlook

The Company reaffirmed its 2017 full year guidance.  As a reminder, fiscal 2017 is a 53-week year which has been incorporated into the full year guidance, with the exception of comparable store sales which are calculated on comparable 52-week basis.  The following guidance also includes the expected impact of the Company’s previously announced store closures.  The fiscal 2017 full year guidance is reaffirmed as follows:

  • Comparable store sales: expected to be -1% to +1%;
  • Gross margin: expected to be up 20 to 40 basis points versus 2016;
  • SG&A dollars: expected to be down 1 to 2% versus 2016;
  • Adjusted earnings per share1: expected to be $0.40 to $0.65.

1 A reconciliation of non-GAAP forward-looking projections to GAAP financial measures is not available as the nature or amount of potential adjustments, which may be significant, cannot be determined at this time.

Shares of J.C Penney are falling nearly 7% to $4.92 in pre-market trading Friday. JCP has a 1-year high of $11.30 and a 1-year low of $5.16. The stock’s 50-day moving average is $5.68 and its 200-day moving average is $7.27.

Sentiment on the street is mostly neutral on JCP stock. Out of 10 analysts who cover the stock, 8 suggest a Hold rating and 2 recommend to Buy the stock. The 12-month average price target assigned to the stock is $7.29, which implies an upside of 38% from current levels.

J. C. Penney Co., Inc. operates department stores, which consist of selling merchandise and services to consumers through its department stores. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside JCPenney and home furnishings.