JC Penney Inc. (JCP, Financial) recently revealed its first quarter results for fiscal 2015 with 53% year-over-year growth in earnings, narrowing its net loss from $352 million in the year-ago quarter to $167 million in Q1 2015. The company’s EPS for the quarter stood at a loss of 55 cents a share, down from the year-ago quarter’s loss of $1.15 a share and comfortably beating the consensus estimate of a loss of 76 cents a share. Following the results, JC Penney shares stood at $8.71 at closing bell, but climbed to a high of $9.18 in after-hours trading.
Same-store Sales Growth Boosts Revenues
JC Penney posted a modest 2% year-over-year growth in revenues to $2.86 billion for the first quarter of fiscal 2015, almost in line with the consensus estimate of $2.87 billion. However, the company saw 3.4% growth in same-store sales, much lower than the year-ago quarter’s 7.4% year-over-year growth. The retailer said its Women’s Apparel, Men’s and Home segments were the top performers during the quarter, while the in-store cosmetic products outlet Sephora also continued its strong performance. The quarter also saw JC Penney’s gross margins growing from 33.1% in the year-ago quarter to 36.4%, while operating costs decreased by 4.9% year-over-year. Excluding items, J C Penney reported adjusted loss for the quarter of 57 cents a share, compared to adjusted loss of $1.16 a share in the prior-year quarter.
JC Penney competes with other businesses such as Kohl's Corp. (KSS, Financial), Macy’s Inc. (M, Financial) and the privately held Sears Roebuck & Co in the retail department store sector.
The Year Ahead
On the back of its upbeat Q1 results, JC Penney revised its full fiscal 2015 guidance from the earlier expected same-store sales growth of 3% to 5% to the new range of 4% to 5%. The company, which saw strong Easter and Mother’s Day sales going into the second quarter, now expects gross margin to improve by 100 to 150 basis points compared to the previously expected 50 to 100 basis points. Further, EBITDA for FY2015 is now projected to touch $600 million, higher than the consensus estimate of $540.6 million.
Since its failed effort to go up-market in 2012 and 2013, JC Penney has been focusing on bringing back its popular in-house brands such as St. John’s Bay that provide the opportunity for higher profit margins. At the same time, the company is also putting efforts to fix its e-commerce business and revamping its selection of home goods. In March, the company also sent out a home goods catalog, its first such mailing in several years, seeking to effectively promote its new business approach. JC Penney also said that given the popularity of the 500 odd Sephora cosmetics outlets located within Penney stores, the company would soon start selling Sephora products on its website.
Final Thoughts
JC Penney reported Q1 2015 earnings that surpassed the consensus estimate and narrowed its net losses significantly compared to the prior-year quarter. Revenues also were almost in line with the consensus estimate figures. Buoyed by its first quarter performance and strong Easter and Mother’s Day sales, the retailer also raised its same-store sales guidance for the full fiscal 2015. The company has also been making efforts to rewind to the pre-2012 years by bringing back popular in-house brands and revamping its goods selection. The company’s results suggest that JC Penney is winning back some of the business it lost to Macy’s, its bigger and more successful rival that recently reported worse-than-expected Q1 results. Experts are looking at an average annual earnings growth rate of around 79% for JC Penney over the next three years with a peak expected in fiscal 2018. The JC Penney stock currently carries a ‘hold’ guidance and investors would do good to wait and watch if the company's attempts at a revamp produce the desired results.
