On The Fly: What to watch in J.C. Penney earnings report

J.C. Penney (JCP) is scheduled to report results of its first fiscal quarter before the market open on Thursday, May 17, with a conference call scheduled for 8:30 am EDT. What to watch for: 1. TURNAROUND EFFORTS: Analysts and investors will listen for comments from the retailer on its cost cutting moves. Last year, J.C. Penney reduced payroll, froze overtime and took other major cost cutting steps as it faced "an expense challenge." J.C. Penney management has said the company would continue to be "aggressive" on cost cutting. In March, the company said it eliminated approximately 130 Home Office positions were eliminated across various departments. At the time, the retailer said that while the restructuring enabled the vast majority of impacted associates to assume a new role or leadership position within the stores organization, approximately 230 positions were subsequently eliminated. The annual cost savings generated from the home office and store reorganization are estimated at approximately $20M-$25M. J.C. Penney said it expected to close seven stores in 2018. CEO Marvin Ellison said at the General Manager Conference in April that in order to be successful, retailers must change and adjust to the marketplace and the way customers shop. 2. COMPETITIVE LANDSCAPE: Mall-based retailers, including J.C. Penney, have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M. The current promotional environment as well as tourism sales and a shift to e-commerce has been a focus for many retailers as of late. At its General Manager Conference, CEO Ellison said that the retailer has a "$10B opportunity to acquire market share from our mall based, brick and mortar competition and we're going to be aggressive." According to a regulatory filing, Amazon said it has exceeded 100M paid Prime members globally 13 years post-launch. Morgan Stanley analyst Brian Nowak that his analysis shows that Amazon has gained 1.5% of U.S. apparel market share in 2017 and may achieve number one U.S. apparel market share in 2018 as Prime members and Millennials shift spending to Amazon and away from traditional brick and mortar retailers. The analyst pointed out that Amazon's 2017 share gains look to have come largely at the expense of department stores, estimating J.C. Penney (JCP), Macy's (M) and Sears (SHLD) lost 0.8% share in 2017. In March, Avi Salzman wrote in Barron's that department store stocks have rebounded in recent months, but they are not all likely to emerge as winners, adding that J.C. Penney remains "tricky." 3. OUTLOOK: In March, J.C. Penney forecast fiscal 2018 adjusted EPS of 5c-25c and comparable store sales flat to up 2%. While analysts had previously expected the company to report FY18 EPS of 20c, the consensus has since moved slightly lower to 19c. CEO Ellison said in April that the retailer will focus on achieving a positive comp in apparel in 2018.

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