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JC Penney (JCP) Q2 Loss Wider Than Expected, FY18 View Drab
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Shares of J. C. Penney Company, Inc. plunged roughly 27% during the trading hours on Aug 16, following the company’s soft second-quarter 2018 results. The company’s sluggish top line, gross margin contraction and widened loss per share were the reasons behind the stock’s debacle. Lower-than-expected results along with the slashed fiscal 2018 guidance hurt investors’ sentiments.
The company’s bearish run yesterday led the shares to plunge 28.2% as against the industry’s decline of 3% in the past month.
The company posted adjusted loss per share of 38 cents that fared unfavorably with the Zacks Consensus Estimate of a loss of 8 cents. Also, the loss figure was wider than the year-ago figure of a loss of 7 cents.
J. C. Penney, which shares space with Macy's (M - Free Report) , generated total revenues of $2,829 million that decreased 7.8% year over year and also fell short of the Zacks Consensus Estimate of $2,885 million.
We note that total net sales of $2,762 million fell 7.5% year over year due to 141 store closures in fiscal 2017. Credit income and other came in at $67 million, down 19.3% on a year-over-year basis.
J. C. Penney Company, Inc. Price, Consensus and EPS Surprise
Comparable sales (comps) managed to achieve growth in the quarter against the decline of 1.3% recorded in the prior-year period. Comparable store sales inched up 0.3% in the quarter, driven by positive comps performance in the Women’s and Children’s apparel, and Beauty categories. Per management, the comps were impacted by a jump in units per transaction.
While gross profit in the quarter decreased 11.6% to $931 million, gross margin as a percentage of total net sales contracted 160 basis points (bps) to 33.7%. Nevertheless, adjusted EBITDA declined to $105 million from $201 million in the year-ago quarter, while adjusted EBITDA margin as a percentage of total net sales decreased 290 bps to 3.8%.
The company has been grappling with inventory management issue for a while now. In order to reduce inventory levels in the reported quarter, the company offered huge discounts on all its products that led to lower-than-expected sales and comps.
SG&A expenses dipped 5.9% to $880 million in the quarter, backed by reduced store expenses stemming from the 141 store closures in fiscal 2017, and corporate overhead and incentive compensation.
Other Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $182 million compared with $314 million at the end of the year-ago quarter. Meanwhile, long-term debt came in at $3,960 million, up from $3,836 million in the year-ago period. Shareholders’ equity totaled $1,216 million at the end of the quarter. Merchandise inventory levels increased 0.1% to $2,824 million.
This Zacks Rank #3 (Hold) company reported negative free cash flow of $235 million for the six-month period ending Aug 4, 2018 compared with free cash flow of $10 million in the prior-year period. Further, it incurred capital expenditures of $221 million, up from $192 million in the year-ago quarter.
Outlook
The company lowered its guidance for fiscal 2018 and expects adjusted loss to range from 80 cents to $1.00 per share. The company had earlier guided adjusted earnings to range from a loss of 7 cents to earnings of 13 cents a share. The Zacks Consensus Estimate for fiscal 2018 is currently pegged at earnings of 3 cents, which could witness a downward revision in the coming days. The company projects comps to remain almost flat for the full year compared with the prior guidance of flat to up 2%.
For the third quarter, the company expects comps to be negative. While gross margin for the quarter is likely to remain under pressure, cost of goods sold as a percentage of net sales is anticipated to increase year over year owing to management’s efforts to reduce inventory levels. Management expects to reduce inventory levels by approximately $250 million by fiscal 2019. Further, SG&A expenses are likely to remain flat to up compared with the year-ago period. The company also projects free cash flow to remain positive in the third quarter.
Dollar Tree, Inc. (DLTR - Free Report) has a long-term earnings growth rate of 15% and carries a Zacks Rank #2 (Buy).
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JC Penney (JCP) Q2 Loss Wider Than Expected, FY18 View Drab
Shares of J. C. Penney Company, Inc. plunged roughly 27% during the trading hours on Aug 16, following the company’s soft second-quarter 2018 results. The company’s sluggish top line, gross margin contraction and widened loss per share were the reasons behind the stock’s debacle. Lower-than-expected results along with the slashed fiscal 2018 guidance hurt investors’ sentiments.
The company’s bearish run yesterday led the shares to plunge 28.2% as against the industry’s decline of 3% in the past month.
The company posted adjusted loss per share of 38 cents that fared unfavorably with the Zacks Consensus Estimate of a loss of 8 cents. Also, the loss figure was wider than the year-ago figure of a loss of 7 cents.
J. C. Penney, which shares space with Macy's (M - Free Report) , generated total revenues of $2,829 million that decreased 7.8% year over year and also fell short of the Zacks Consensus Estimate of $2,885 million.
We note that total net sales of $2,762 million fell 7.5% year over year due to 141 store closures in fiscal 2017. Credit income and other came in at $67 million, down 19.3% on a year-over-year basis.
J. C. Penney Company, Inc. Price, Consensus and EPS Surprise
J. C. Penney Company, Inc. Price, Consensus and EPS Surprise | J. C. Penney Company, Inc. Quote
Let’s Delve Deeper
Comparable sales (comps) managed to achieve growth in the quarter against the decline of 1.3% recorded in the prior-year period. Comparable store sales inched up 0.3% in the quarter, driven by positive comps performance in the Women’s and Children’s apparel, and Beauty categories. Per management, the comps were impacted by a jump in units per transaction.
While gross profit in the quarter decreased 11.6% to $931 million, gross margin as a percentage of total net sales contracted 160 basis points (bps) to 33.7%. Nevertheless, adjusted EBITDA declined to $105 million from $201 million in the year-ago quarter, while adjusted EBITDA margin as a percentage of total net sales decreased 290 bps to 3.8%.
The company has been grappling with inventory management issue for a while now. In order to reduce inventory levels in the reported quarter, the company offered huge discounts on all its products that led to lower-than-expected sales and comps.
SG&A expenses dipped 5.9% to $880 million in the quarter, backed by reduced store expenses stemming from the 141 store closures in fiscal 2017, and corporate overhead and incentive compensation.
Other Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $182 million compared with $314 million at the end of the year-ago quarter. Meanwhile, long-term debt came in at $3,960 million, up from $3,836 million in the year-ago period. Shareholders’ equity totaled $1,216 million at the end of the quarter. Merchandise inventory levels increased 0.1% to $2,824 million.
This Zacks Rank #3 (Hold) company reported negative free cash flow of $235 million for the six-month period ending Aug 4, 2018 compared with free cash flow of $10 million in the prior-year period. Further, it incurred capital expenditures of $221 million, up from $192 million in the year-ago quarter.
Outlook
The company lowered its guidance for fiscal 2018 and expects adjusted loss to range from 80 cents to $1.00 per share. The company had earlier guided adjusted earnings to range from a loss of 7 cents to earnings of 13 cents a share. The Zacks Consensus Estimate for fiscal 2018 is currently pegged at earnings of 3 cents, which could witness a downward revision in the coming days. The company projects comps to remain almost flat for the full year compared with the prior guidance of flat to up 2%.
For the third quarter, the company expects comps to be negative. While gross margin for the quarter is likely to remain under pressure, cost of goods sold as a percentage of net sales is anticipated to increase year over year owing to management’s efforts to reduce inventory levels. Management expects to reduce inventory levels by approximately $250 million by fiscal 2019. Further, SG&A expenses are likely to remain flat to up compared with the year-ago period. The company also projects free cash flow to remain positive in the third quarter.
3 Retail Stocks to Consider
Abercrombie & Fitch Co. (ANF - Free Report) has delivered an average positive earnings surprise of 32.3% in the trailing four quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar Tree, Inc. (DLTR - Free Report) has a long-term earnings growth rate of 15% and carries a Zacks Rank #2 (Buy).
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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