The implementation of a leaner cost structure should also see the company cut on expenses, which should aid in cutting losses and perhaps a return to profitability in the near future. In a recent survey conducted by the company with regard to one of its private brands, St. John’s Bay, on Facebook, 70% of voters expressed that they were happy to see the brand back on J.C. Penney Company, Inc. (NYSE:JCP)’s line-up. This is a good sign, which indicates that the company is actually winning some of its lost customers back from rivals like Macy’s, Inc. (NYSE:M) and Kohl’s Corporation (NYSE:KSS).
Kohl’s and Macy’s not like J.C. Penney
Contrary to J.C. Penney, Macy’s is a profitable company, and certainly has no pressure from shareholders. Additionally, comparing J.C. Penney to Macy’s is like pitting David against Goliath. The more than a century-old J.C. Penney Company, Inc. (NYSE:JCP) has a market cap of just $3.94 billion, thanks to the massive loss in value since 2008. Macy’s, Inc. (NYSE:M), on the other hand, would be around a couple of centuries in age if it is still around for the next 16-17 years. The Cincinnati-based retailer is the biggest among the trio with a market cap of $18.74 billion. Macy’s boasts the best gross margin at 40%, followed by Kohl’s Corporation (NYSE:KSS) with 36%, while J.C. Penney, as noted earlier, is just over 30%.
Both Kohl’s and Macy’s are tied at 10% in terms of operating margin, while J.C. Penney stands at a net operating loss of 13%. Interestingly, despite the 10% operating margins of Kohl’s and Macy’s, Inc. (NYSE:M), it seems that investors are still shy of the industry. Investors seem unwilling to give anything upwards of 5x P/E ratio. This is depicted by Macy’s P/E ratio, which stands at 3.39x while Kohl’s is pegged at 4.24x. Kohl’s Corporation (NYSE:KSS) profit margin stands at 5.09%, slightly above Macy’s at 4.91%, while J.C. Penney Company, Inc. (NYSE:JCP) is at a net loss of 9.38%. Macy’s most recent quarter results were up by close to 20%, with revenue up just 4%, while Kohl’s earnings fell 4.5% after reporting 1% decline in revenue.
The bottom line
J.C. Penney is doing a good thing by resuming discounts, promotions, coupons, and allowing private brands like St. John’s Bay. This will definitely woo some of its lost customers. Consequently, vendors would be willing to wait a little bit longer for payments, as the company would appear to be certain of posting a series of sustainable sales. However, the bottom line is not about clearing the mess, but more like getting back to business.
The new lines of credit should solve short-term cash needs, while helping to cover turnaround costs. The company lags the competition and will definitely struggle to catch up with Macy’s, Inc. (NYSE:M), which appears to be romping on J.C. Penney’s failures. Kohl’s Corporation (NYSE:KSS) is not far off either, but looks to be a little more stable than the Plano, TX-based J.C. Penney.
J.C. Penney also received a boost from Maxim Group analysts after they upgraded the stock to a Buy rating with a price target of $27. Whether this is realistic or not, it is quite a long shot for the near term. However, looking forward, J.C. Penney Company, Inc. (NYSE:JCP)’s large network of stores (more than 1,100 stores in 49 states) coupled with the return of Ullman and resumption of the various strategies is bound to pay-off at least in the long run. But how long?
Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article J.C. Penney: Cleaning Up the Mess to Turnaround? originally appeared on Fool.com.
Nicholas is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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