J.C. Penney Drops As Analysts Jump Ship With Retailer In 'Tough Spot'
Shares of J.C. Penney (JCP) dropped in morning trading after several analysts downgraded the stock, with one saying that the retailer is "in a tough spot."
J.C. PENNEY 'IN A TOUGH SPOT': Citi analyst Paul Lejuez lowered his price target for J.C. Penney shares to $4.50 and said that like other department stores in the U.S., J.C. Penney is "in a tough spot." He said that Penney's store closings will need to happen "at a more rapid pace" as sales shift online. Deutsche Bank analyst Paul Trussell downgraded J.C. Penney to Hold from Buy and lowered his price target to $5.50 from $9, saying his thesis of sustainable outperformance compared to the peer group has not transpired and that the company's Q1 SSS were in-line with the weakness experienced by peers despite non-apparel initiatives. Trussell noted that cost savings were "limited" and the company's $1.1B EBITDA guidance "could be at risk." Trussell said he is stepping to the sidelines with a lowered medium term view. Buckingham analyst Jarrod Feinstein also downgraded J.C. Penney to Neutral from Buy and cut his price target to $5 from $10, citing a lack of near-term catalysts, including a lack of visibility on the retailer's ability to reaccelerate its core comp sales from the current low single digit trend. Feinstein said that the department store sector continues to face a challenge with trying to drive traffic to stores between key shopping events that remain very promotional, and that J.C. Penney is "not alone in a sector trying to find ways to re-excite the customer" in the apparel category. Baird analyst Mark Altschwager downgraded J.C. Penney to Neutral from Outperform and lowered his price target to $5 from $9, stating that while he believes management has put the company "on a better path" by diversifying product mix, cutting costs and de-risking the balance sheet, core EBITDA growth "looks more tenuous" and valuation expansion is difficult as industry headwinds intensify and earnings quality erodes.
WHAT'S NOTABLE: J.C. Penney and several of its mall-based peers, who have been hurt by the increasing popularity of fast-fashion retailers and an increase in online shopping, reported lower sales and comparable store sales in the first quarter. CEO Marvin Ellison noted that February was a "very challenging month," but said on the earnings call that the nine-week March-April combined comp improved 600 basis points from February. Ellison said the retailer is "confident" Q2 comps will be within the guided range for the year and backed his view that EBITDA for the year will be about $1.1B and free cash flow will be about $300M-$400M. J.C. Penney is delaying its planned closure of 138 stores by about a month after sales picked up in the locations and will begin the liquidation process later this month for the majority of the stores, Penney said last week.
PRICE ACTION: J.C. Penney is down 4.4% to $4.35 in morning trading. Shares are down nearly 48% year-to-date.
OTHERS TO WATCH: Other mall-based apparel retailers include Nordstrom (JWN), Macy's (M), Sears (SHLD) and Dillard's (DDS).
Disclosure: None.