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Why JCPenney Stock Rose on July 13

PART:
1 2 3
Part 2
Why JCPenney Stock Rose on July 13 PART 2 OF 3

Are JCPenney’s Sales Expected to Improve?

Weak top line

JCPenney (JCP) and its department store peers have been under tremendous pressure. Online retailers like Amazon (AMZN) have negatively impacted department stores’ sales growth. Fiscal 1Q17, which ended on April 29, 2017, was the third consecutive quarter that JCPenney’s sales fell. Aside from Amazon, off-price retailers like TJX Companies (TJX) and Ross Stores (ROST) are also eating into department stores’ market share. Off-price retailers sell their merchandise at deep discounts compared to similar merchandise sold by department stores.

Are JCPenney’s Sales Expected to Improve?

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In fiscal 1Q17, JCPenney’s sales fell 3.7% on a year-over-year basis. The decline was mainly due to weak sales in February. Macy’s (M) and Kohl’s (KSS) sales fell 7.5% and 3.2%, respectively, in fiscal 1Q17.

JCPenney has been taking several measures to improve its sales. With apparel sales looking weak, the company is seeking growth opportunities in categories like appliances. JCPenney reintroduced appliances in its stores after a gap of over 30 years.

As we mentioned in Part 1 of this series, the company is launching toy shops in all of its brick-and-mortar locations. Another key category that the company is focusing on is its beauty business—particularly Sephora stores. Sephora is owned by the luxury group LVMH Moet Hennessy Louis Vuitton SE (LVMUY) (MC.PA). Sephora stores offer an extensive range of beauty products from over 200 beauty brands.

Analysts’ expectations

Despite JCPenney’s growth strategies, analysts expect the company’s sales to fall 2.8% to $12.2 billion in fiscal 2017. An uncertain retail environment and intense competition from Amazon are some of the key issues that will likely impact the company’s sales.

Analysts expect JCPenney’s sales to fall 2.8%, 4.4%, and 0.9% in fiscal 2Q17, 3Q17, and 4Q17, respectively.

In the next part, we’ll look at analysts’ recommendations for JCPenney stock.

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