The retail industry is highly competitive and in order to survive in this environment, one should continue to innovate and market its products. Failing to do so, results in loss of customers of the company. For instance, department store retailer JC Penney (JCP, Financial) witnessed adverse effects of not marketing its products. It resulted in huge losses for the company, and it is still unable to overcome the situation and turn around its business.
However, through various turnaround efforts, the company managed to register decent third-quarter results for fiscal year 2014. Although it failed to meet the revenue estimates, the bottom line recovered from the losses of the last few quarters and beat the Street's estimates.
The mixed bag of results
Total sales missed the revenue estimate of $2.81 billion, clocking in at $2.76 billion for the quarter. This was slightly lower than the top line of $2.78 billion in the previous year. Thus, revenue has been a matter of concern for the company.
Same-store sales were flat in the company, whereas the analysts were expecting it to be at 3%. Penney needs to improve this metric by attracting more and more customers at its existing stores. However, it was better than last year's comp sales decline of 4.1%. This was because of higher demand during the back-to-school season this year. However, a key reason why same store sales were not up to the mark was because of warm weather which hurt the company's sales in September and October.
Some of the strongest performing categories during the quarter were home and jewelry divisions, which witnessed higher sales. Footfall in the Sephora stores was also on the rise as it attracted more customers during the period. Sephora stores have been one of the key drivers in Penney's store traffic.
The company managed to register a decent improvement in its bottom line. Loss for the quarter stood at $0.62 per share as against a loss of $1.81 per share in the previous year's quarter. Also, it beat the analysts' estimate of $0.80 per share, making investors hopeful about its future. Further, gross margin rose to 36.6% from 29.5% in the prior year as it recovered from the impact of clearance sales, which offered products with huge discounts.
Tough competition
The department store retailer faces stiff competition from online retailers, such as Amazon, and big box retailers, such as Walmart (WMT, Financial). These retailers have been promoting its products well and are offering the lowest prices possible, attracting a lot of customer attention.
Nonetheless, the company believes to make a comeback through its efforts. In fact, Penney's CEO Mike Ullman is also of the opinion that its results show "the progress we are making in the final phase of JC Penney's turnaround."
Summarizing
JC Penney has not yet managed to show clear signs of a turnaround since its revenue is far from recovering. However, it did manage to improve its bottom line. Also, the company expects its sales to increase during the fall season since demand for outerwear has already started picking up. Hence, it expects comp sales to rise between 2% and 4%. Also, margins are expected to rise 5% to 6%. These factors make Penney's future bright. But, investors should still be cautious and invest only when the company's revenue starts to take off.
