J.C. Penney Earnings Raise Investors' Animal Spirits -- for Some Reason

Source: courtesy J.C. Penney Co. Inc.
J.C. Penney Co. Inc. (NYSE: JCP) reported fourth-quarter and full-year 2013 results after markets closed Wednesday afternoon. The venerable retailer reported an adjusted diluted earnings per share (EPS) loss of $0.68 and $3.78 billion in revenues. In the same period a year ago, J.C. Penney reported an EPS loss of $1.95 on revenue of $3.88 billion. First quarter results compare to the Thomson Reuters consensus estimates for an EPS loss of $0.85 and $3.85 billion in revenue.

On a GAAP basis, J.C. Penney posted quarterly EPS of $0.11, primarily due to a one-time gain of $0.88 on a tax benefit.

For the year the company posted an EPS loss of $5.74 compared with a loss of $3.49 in 2012. Revenues in 2013 totaled $11.86 billion compared with $12.99 billion in the prior year. The consensus estimate called for a loss of $6.15 on revenues of $11.93 billion.

Same-store sales rose 2% in the quarter and fell 7.4% for the full-year. Online sales contributed $1.08 billion to total sales for the year.

J.C. Penney said that same-store sales are expected to rise 3% to 5% in the first quarter of 2014 and gross margins “are expected to improve.” For the full year same-store sales are forecast to increase in the mid-single digits and gross margin is expected to “improve significantly.”

None of this means that the same-store sales will be positive, although with the awful results posted in 2013 it is difficult to see how J.C. Penney can miss. For comparison, same-store sales in the third quarter of 2013 were down 4.8%, which was an improvement from the drop of 11.9% from the prior year. Same-store sales were up 0.9% in October, the first gain the company has seen in two years.

The company’s CEO said:

JCPenney achieved what it set out to do on a number of important fronts in 2013. We stabilized our business, both financially and operationally, and restored our process disciplines, promotions, inventory levels and focus on the customer. As a result, we generated positive comparable store sales in the fourth quarter and ended the year with more than $2 billion in total available liquidity. With the most challenging and expensive parts of the turnaround behind us, we will focus on improving gross margin, managing expense and steadily growing our sales in 2014.

At the end of the the third quarter J.C. Penney said that it expected to end the year with merchandise inventory totaling $2.85 billion. The final figure was $2.935 billion. Gross margins for the full-year fell 14.1%. Even with low margin sales, that inventory overhang is not encouraging.

Investors cannot seem to give up on this outfit. Shares are up 3.4% in after-hours trading, at $5.96 in a 52-week range of $4.90 to $21.42. Thomson Reuters had a consensus analyst price target of around $7.90 before today’s results were announced. One analyst, though, has a price target of $2.50.

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