Analyst Gives Mixed Review on J.C. Penney After Earnings

Compared to Amazon.com Inc. (NASDAQ: AMZN), Target Corp. (NYSE: TGT) and Wal-Mart Stores Inc. (NYSE: WMT) earnings, J.C. Penney took a beating in the fourth quarter. The fact of the matter is that J.C. Penney is too small to compete with these giants, and it does not help that the company has struggled in its earnings for a few years now.

In January, J.C. Penney announced that during the December-to-November period it saw comparable store sales growth of 3.7% over the same period of last year. The company also announced that it expected to report fourth-quarter comparable store sales at the upper end of its previous guidance range of 2% to 4%.

Comparable store sales rose 4.4% for the quarter. Online sales through JCPenney.com were $428 million for the quarter, up 12.5% from the same period last year. Men’s apparel, Home and Fine Jewelry were the company’s top performing merchandise divisions during the quarter.

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Sterne Agee issued a Neutral rating. The firm ultimately considers the story of J.C. Penney’s earnings “mixed.” Sterne Agee applauded the retailer for the strong comparable sales and cash flow performance in the quarter. However, expectations have risen quickly, and as such, margins were materially weaker than what was embedded in Wall Street models.

The good news of this story was that comparable sales were at the high end of guidance for the quarter and that the company is “ahead of plan” in February on sales despite West Coast port issues and inclement weather.

The bad news stems from the 2015 guidance. Comparable sales are expected below mid-single digits. In Sterne Agee’s view, the sales commentary by CFO Ed Record implied comparable sales will run closer to the lower end of full-year guidance in the first half of 2015. This is considering expectations that the company’s sales initiatives will not “kick in until later in the year.”

Shares of J.C. Penney were down 3.4% at $8.21 in the first half of the trading day. The stock has a consensus analyst price target of $8.14 and a 52-week trading range of $5.90 to $11.30.

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