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Will JCPenney Deliver an Improved Bottom Line in 2Q16?

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Aug. 8 2016, Published 3:31 p.m. ET

Continuous improvement

JCPenney (JCP) has been able to improve its bottom line in each of the quarters of 2015 and in 1Q16. In 1Q16 ended April 30, 2016, JCPenney trimmed its losses per share (excluding one-time items) despite a fall in its sales.

Analysts expect that this improvement continued in 2Q16, which ended on July 30, 2016. For 2Q16, analysts expect JCPenney’s adjusted earnings per share (or EPS) to come in at -$0.14, better than its adjusted EPS of -$0.41 in 2Q15.

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Improvement in 1Q16

JCPenney reported adjusted EPS of -$0.32 in 1Q16 compared to adjusted EPS of -$0.57 in 1Q15. Analysts expected the company to report adjusted EPS of -$0.37. The improvement in JCPenney’s bottom line despite lower sales in 1Q16 was attributable to the company’s operational efficiencies.

JCPenney managed to bring down its SG&A (selling, general, and administrative) expenses by 9.6% to $872 million in 1Q16. SG&A expenses fell in the quarter due to lower controllable costs and corporate overhead, reductions in advertising spending, and higher private label credit card income.

JCPenney’s peers reported a fall in their 1Q16 bottom lines due to lower sales and increased markdowns caused by a highly promotional environment. Macy’s (M), Nordstrom (JWN), and Kohl’s (KSS) reported falls of 28.6%, 45.5%, and 50.8%, respectively, in their 1Q16 adjusted EPS.

The iShares S&P Mid-Cap 400 Value ETF (IJJ) has 10.8% exposure to the consumer discretionary sector and 0.4% exposure to JCPenney.

Full-year outlook                 

JCPenney is optimistic about delivering EBITDA (earnings before interest, tax, depreciation, and amortization) of $1 billion in 1Q16. JCPenney’s adjusted EBITDA rose by 80% to $153 million in 1Q16 on a year-over-year basis. Including one-time items, the improvement in the company’s 1Q16 EBITDA was 63%.

Analysts expect JCP to deliver adjusted EPS of $0.07 in 2016 compared to adjusted EPS of -$1.03 in 2015.

We’ll discuss expectations from the company’s 2Q16 sales in the next part of this series.

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