J.C. Penney (NYSE:JCP) is a solid turnaround story. The apparel chain has been disappointing on the stock market with prolonged losses for two years. However, Penney proved itself still competitive by having a solid start to the fiscal 2014. The company gained traction and posted solid results, which were solid. The stock has gained well as a result of a good turnaround. However, the company is still in loss but it has improved a lot, resulting in narrowing the losses as compared to last year. Let us have a look at Penney’s strategies and prospects.
A solid turnaround
JC Penney started off well with impressive results. The stock has been disappointing since two years but with solid results right in the first quarter the shares of the company saw an outstanding 16% growth in the early trading session. JC Penney saw good results as a result of improvement in sales. The net sales for JC Penney grew $2.8 billion from a year ago period of $2.64 billion. Also this increase in the net sales led to the increase in the company’s profit margin by 230 basis points. JC Penney worked on its operational efficiencies and the success of this move can be justified by the fact that the company narrowed its losses to $1.16 per share from $1.25 per share last year.
- Warning! GuruFocus has detected 3 Warning Signs with JCP. Click here to check it out.
- JCP 15-Year Financial Data
- The intrinsic value of JCP
- Peter Lynch Chart of JCP
As a result of continued weakness, things were turning away from JC Penney. The stock was continually falling and it troubled the management much. The company was beating around the bush to get over the tough times. The things changed for JC Penney with solid results. Under the leadership of new CEO the company got a direction and encouragement for a turn back. Management undertook many strategies to help JC Penney to be on track again.
Strategies for the future
This turnaround by the company happened as a result of solid strategies of stabilization, rebuilding and go-forward. The company believes to have completed two stages and is gearing itself for the go-forward phase. For this JC Penney is looking for better prospects and aggressive moves to be profitable and to leave its strong foot prints in the market. Moreover JC Penney is aggressive for a solid profitability in future, to attain this it is focusing on refining its merchandising and marketing strategies. All these moves by the company is focused to improve sales and the gross margin. On the other hand JC Penney is also focusing to be cost effective, for this it is tightening its expenses with a sole motive of attaining profitable growth.
As per company’s estimates JC Penney is in line with the strategic plans and it wants this to keep going in future. This is good news for the company as well as the investors. The management expects to bring back the market share from its peers.
To be competitive in market and to hold a good stiff edge with peers JC Penney is focusing on merchandising strategies. It is focusing on a new customer shopping experience just in the way the customers want. Under this JC Penney has re-launched its new home store, Home Collections of J.C Penney. . It has rearranged its merchandize assortment in a manner that makes optimum utilization of its floor space keeping in mind the customer preferences. It has refined the merchandize according to the customer’s budget and lifestyle. JC Penney has also opened 30 new Sephora stores, which continue to deliver good results.
JC Penney doesn’t want to give a second chance to its competitors, that is why it is making aggressive moves in marketing and brand positioning to create a distinct image for the brand in customer’s mind. Under this the company’s new punch line “When it Fits You Feel It” has been well received by the customers. Similarly, in the past JC Penney has carried out many promotional campaigns that were focused mainly on holiday and Easter season which paid off well resulting in large customer engagement to its shops. This in turn resulted in boosting the company’s sales. . Its digital marketing has also increased and its online sales rose 25.7% for the quarter.
The company seems well maintained in cash position also. The company has increased its credit capacity by $500 million. Also, JC Penney has obtained a fully committed underwritten 2.35 billion ABL credit facility which has replaced its existing bank line. The facility is being underwritten by lead arrangers, Wells Fargo and Bank of America Merrill Lynch, as well as J.P. Morgan, Barclays and Goldman Sachs. This can attract more investors to the stock as the strong cash position will surely lead to better dividend offering to the investors. This will help JC Penney to gain market share in future.
JC Penney is growing and the its strong prospects proves that. As a result of this the company is confident of better performance in future and it has exceeded its outlook also. Still JC Penney has to work on various areas where it is still lagging.
With a strong turnaround, JC Penney seems promising with its prospects and good financials. But the ratio tells a different story. Its future five year growth rate is declining at 28% which is not at all impressive. However, management is confident of improvement and has also exceeded the outlook. But as of now investment in JC Penney seems not a wise decision. The investors must look for other profitable stocks for their portfolio until there are concrete signs of stock gaining market share.