uploads///JCP Margins Q

How JCPenney Looks on the Margin Front

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Mar. 9 2018, Updated 7:33 a.m. ET

Margins in fiscal 4Q17

JCPenney’s (JCP) gross margin expanded 50 basis points to 33.6% in fiscal 4Q17. Its operating margin declined on a year-over-year basis. The higher gross margin was driven by a decline in costs due to lower promotional activity and better inventory positions. The company saw an improvement in its fiscal 4Q17 selling margins due to the ongoing margin initiatives and a rise in profitability of the company’s private label.

However, costs for support continued to grow for its online and major appliance businesses. Higher shrink rates adversely impacted its gross margin.

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Operating margin in 4Q17

JCPenney’s operating margin declined 80 basis points to 6.1% in fiscal 4Q17. Despite flat SG&A (selling, general, and administrative) expenses, its operating margin contracted since fiscal 4Q16 included higher asset sale gains.

SG&A expenses as a percentage of sales were flat at 23.4% in fiscal 4Q17. Lower store controllable costs and marketing spending were partially offset by a decline in credit income and higher incentive compensation.

In comparison, the operating margin for Kohl’s (KSS) expanded to 8.4% in fiscal 4Q17 compared to 7.6% in fiscal 4Q16. The improvement was from a higher gross margin and improved expense management.

For fiscal 2017, JCPenney’s gross margin declined to 34.6% compared to 35.7% in fiscal 2016. The decline was due to the liquidation of slow-moving inventory as well as the inventory of closed stores, costs to support higher sales of online and major appliance businesses, and a rise in shrink rates. Its operating margin declined to 0.9% in fiscal 2017 compared to 3.2% in fiscal 2016 due to higher restructuring and management transition expenses.

Its margins in fiscal 2018 are expected to benefit from expense management efforts.

We’ll look at analysts’ ratings in the next part of this series.

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