J.C. Penney Co. Inc. (NYSE: JCP) is one of the worst-hit department store operators in the United States in the wake of the coronavirus. While this is bad, the stock was doing poorly before this crisis, and things have only gotten worse.
The Dow Jones industrial average saw its worst first quarter in the history of the index. Needless to say, the S&P 500 and Nasdaq were close runners-up. The overall market climate may be poor at best for brick-and-mortar retailers, but companies hedging their bets with e-commerce has proven to be effective. Will J.C. Penney get on board with this trend before it’s too late?
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No Bricks About It
Many department store chains across the country have been forced to close their doors as a result of the COVID-19 outbreak. Social distancing has pushed most, if not all, of the economy online. Although the trend toward e-commerce has been on the rise for years now, only retailers with a solid online presence are managing to push through these troubling times. At the same time, this is hurting many of those with a sizable brick-and-mortar footprint.
So where does J.C. Penney stand?
Currently, the company does not break out its e-commerce sales from its total revenues. However, some estimates put J.C. Penney’s 2019 e-commerce sales around $2.2 billion, or about 20% of its total revenues of $10.7 billion. Even though total revenues have been on the decline over the years, e-commerce reportedly has been picking up.
On the other hand, sales have still been dropping for this department chain. With 859 stores at the end of the fiscal year, store-related expenses make up a significant portion of the company’s bottom line, especially in selling, general and administrative expenses (SG&A).
However, for the past three years, the company actually has posted positive operating results (income) for its Real Estate segment expenses. For 2019, J.C. Penney saw $15 million in income, as well as $19 million in 2018 and $146 million in 2017. Normally, these are expenses, but liquidating real estate and closing stores is a positive. Again, this might not be enough, considering total costs and expenses were $11.2 billion, $12.0 billion and $12.7 billion in the same periods.
If anything, this might prove the cost efficiencies of primarily running an e-commerce platform. The transition to this model would obviously be painful, but it could work out better in the long run.
Reducing the store count, as management has been doing, could salvage some of this company, but only closing 27 stores in 2019 may not be enough. It has closed a total of 173 stores since the start of fiscal 2017. Also considering the current economic climate, another question J.C. Penney will have to answer is how many of these stores to reopen.
J.C. Penney Stock
There are already more than enough questions for J.C. Penny to answer about its business model, but what about its standing in the market? A look at its chart shows this stock has been on a race to zero. Slumping sales haven’t helped ease this sentiment either.
J.C. Penney stock has been flirting with the $1 price level since May of last year. The stock definitively slipped under $1 in January, and the New York Stock Exchange was quick to let the company know it was out of compliance. Accordingly, the company has six months to regain compliance. The idea of a reverse stock split has been floated by management, but that is subject to shareholder approval.
24/7 Wall St.The share price has only retreated since then, so regaining compliance will be more of an issue than it initially thought. J.C. Penney stock has fallen 71% year to date, and it is down 78% in the past 52 weeks. Taking a longer-term perspective on the stock only makes things look worse.
This situation raises more questions, including whether J.C. Penney will still be listed on the NYSE in six months.
Mauled at the Mall
Prior to the COVID-19 outbreak, one major survey indicated that mall traffic in the United States would continue to fade. That leaves retailers with many of their locations in these buildings in major trouble. J.C. Penney appears to be suffering the worst from this trend, and then social distancing on top of that. If foot traffic to malls plunges, so does foot traffic to much of its national store footprint.
In its survey, Coresight Research said that the already slowed use of malls as locations to shop had continued to dip. The spread of the new coronavirus has only made matters worse.
The traffic through these malls had been critical to J.C. Penney. It often holds one of the anchor spots, usually at the end of a major concourse. Traffic through a mall usually moves up and down these concourses. The anchor position is the lifeblood of the stores that hold them.
As this trend continues and mall traffic fades, it’s not a leap to expect something similar at J.C. Penney.
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