Has J.C. Penney Bottomed Out?

Source: http://www.flickr.com/photos/aloha75/

Source: http://www.flickr.com/photos/aloha75/

It was a tough year in 2013 for J.C. Penney Company, Inc. (NYSE:JCP). Shares fell more than 57 percent through January 2, 2014, and were down more than 73 percent on the year on February 25. The decline has been the market’s reaction to an evaporation of sales at J.C. Penney that arguably began in 2010. The retailer began an aggressive restructuring program in 2011, which kicked off with the closure of its catalog business, and has already shuffled through one chief executive and one president as part of the effort.

The restructuring has been as much of a consolidation as anything. In April of 2012, the company announced major layoffs and the closure of a call center. There was a high-level dispute involving members of the company’s board of directors, and in December of 2013, J.C. Penney was kicked off the S&P 500 because of its financial and operational challenges and its devolution to the mid-cap league.

But, with the share price falling as far as $4.90, the company may have finally found a floor. J.C. Penney reported fourth-quarter and full-year results on Wednesday that did not disappoint investors. Shares, which closed the regular trading session up 5.86 percent at $5.96, are climbing over 22 percent in today’s trading. J.C. Penney reported net sales of $3.78 billion, down 2.6 percent on the year but still better than the mean analyst estimate of $3.85 billion. For the year, net sales fell 8.7 percent to $11.86 billion, slightly below the mean analyst estimate of $11.93 billion. Comparable store sales were down 7.4 percent for the year, but up 2.0 percent on the year in the fourth-quarter.

J.C. Penney reported a gross margin of 28.4 percent in the fourth-quarter, up from 23.8 percent in the year-ago period. From the report: “Gross margin included a negative impact of 190 basis points associated with the discontinuation of brands that are not part of the company’s go-forward merchandising strategy, of which 90 basis points was related to the de-valuing of discontinued brand inventory at year end. Gross margin was also negatively impacted by higher than anticipated clearance markdowns taken late in the quarter.” Investors were already expecting this impact as J. C. Penney has a lot of old inventory to world through.

J. C. Penney reported an adjusted net loss of 68 cents per share in the fourth-quarter, which is not as bad as the loss of 85 cents per share that analysts were expecting.

Looking ahead, J.C. Penney is projecting same-store sales growth between 3 and 5 percent in the first-quarter and in the “mid single digits” for the year. Gross margin is expected to improve “significantly” over the course of 2014, and the company is expecting to have $2 billion on hand.

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