J.C. Penney Company, Inc. (NYSE:JCP) Q4 Earnings Preview: Look For JCP To Slash Loss Despite Weaker Sales

 @SophieXSong
on February 25 2014 11:58 AM
J.C. Penney Store Revival
J.C. Penney store. REUTERS

J.C. Penney Company, Inc. (NYSE:JCP), the venerable American department store chain struggling to regain profitability after a failed 2012-13 turnaround bid, is expected to slash its fiscal fourth-quarter loss by 44 percent as stronger profit margins offset weaker same-store sales.

The Plano, Texas-based company, which will report results for the three months ended Feb. 1, 2014, on Wednesday after markets close, is expected to report a fourth-quarter net loss of $239.15 million, or 88 cents per share, compared with a loss of $427 million, or $2.51 cents per share, in the fourth quarter of 2012, according to a survey of analysts by Thomson Reuters. Excluding one-time events, analysts expect a loss of 82 cents per share compared with a loss of $1.95 cents per share.

Revenue will be $3.85 billion, a 0.8 percent decrease from $3.88 billion a year earlier. 

The company, which operates about 1,100 retail stores and employs some 154,000 people, booked a same-store sales gain for its fiscal fourth quarter of 2 percent, less than the 4 percent improvement Wall Street had been expecting but the first time since the second quarter of 2011 that J.C. Penney has generated positive quarterly sales results. However, the trajectory of same-store sales for the period was discouraging: a 10 percent gain in November, a 2 percent loss in December and a 4 percent loss in January. 

Internet sales surged during the company's fourth quarter by 26.3 percent.

The company cited sales strength in several categories, including its Sephora line of beauty products, activewear, outerwear, dresses, boots, men's clothing, luggage and housewares.

Financially, J.C. Penney ended the quarter well, with total available liquidity of more than $2 billion, including $785 million in net cash proceeds from its recent share offering, a strong number that is "likely due to better inventory management and monetization of assets," Goldman Sachs analyst Stephen Grambling said in a note.

While overall revenue is expected to decline 0.8 percent, the company's gross margin is expected to improve 6.69 percent, according to analysts polled by Thomson Reuters. However, Wall Street will scrutinize the fourth-quarter numbers to see if holiday promotions squeezed the company's profit margin, particularly since the company's December same-store sales report lacked detailed information.

J.C. Penney cited significant headwinds facing retail in the quarter, including unprecedented weather conditions in parts of the country that caused store closings throughout the quarter. 

Costs continued, apparently, to weigh on the company's performance because last month it said it would close 33 stores and dismiss 2,000 workers for a total annual cost savings of about $65 million.

For the 12 months ended Feb. 1, 2014, analysts expect the J.C. Penney's loss to widen to $1.51 billion, or $6.47 per share, on revenue of $11.93 billion compared with a loss in the previous year of $766 million, or $4.49 per share, on revenue of $12.99 billion.

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