Charles Grom, Renato Basanta, and John Parke are signaling that the same-store sales are just not good enough. The team said that a 2% gain in comparable store sales is a step in the right direction, but also said that the slope of the improvement continues to disappoint.
Where this gets worse is that the Sterne Agee team is telegraphing that their math actually suggests that comparable store sales were negative – 1% or so during the December period. The team now worries that odds of another cash infusion just augmented meaningfully.
January was down roughly 3.5%, and the improved trends in January are less than desired for the turnaround that the company needs. The team said that JCPenney needs the improvement to be much better than it is currently tracking and said, “it is becoming increasingly critical that the company starts to see meaningful improvement if it is to survive as currently constituted.”
Survive as currently constituted? Does that mean that the company is doomed as it stands now? Sterne Agee said it has two important questions regarding the financial outlook and viability for JCPenney.
- “First, does JCPenney have enough “ammunition” to improve its brand equity and drive traffic? With a few new brands on the horizon and continued adjustments to current planograms set for 1Q – there is some hope . . . but we believe the window is closing rather quickly.”
- “Second, will JCPenney need to raise additional funds and when? Based on our model (FY14 = assuming a +2.0% comp/GPM + 540 bps YOY/SG&A $ growth down 1.7%), we believe JCP could run into another liquidity situation by 3Q14. The bottom line is that JCPenney’s sales trend need to improve materially better . . . and quickly.”
Sterne Agee now models a loss of -$1.05 per share in the fourth quarter, making the last year an expected loss of -$6.50 versus -$6.20 previously projected. The firm is also now modeling 2.0% comparable growth in 2014 and a loss of -$3.72 per share. The team also said,
“Importantly, given the current comp trajectory, we now model liquidity running at very low levels into the third quarter of 2014 and believe that the company will likely need an external cash infusion to stay afloat.”
Lastly, Sterne Agee sees operating losses running through 2017. The prior $9.00 price target was cut down to $3.00 based on 13-times its 2017 EBITDA expectations.
24/7 Wall St. recently projected that the 3% store closures was just not anywhere close to being enough. That now seems to be the case and then some. The company also has tried to make itself immune to new outside pressure and acquirers.
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