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Factors Setting the Tone for J. C. Penney (JCP) Q1 Earnings

Zacks

J. C. Penney Company, Inc. JCP is slated to release first-quarter fiscal 2018 results on May 17. In the previous quarter, the company reported better-than-expected earnings. Also, it surpassed the Zacks Consensus Estimate in three of the trailing four quarters.

An Insight in to Current Estimates

In order to get a clear picture of what analysts expect from the company’s earnings release, let’s take a look at the earnings estimate revisions.

The Zacks Consensus Estimate for first-quarter bottom line, which has been stable over the past 60 days, is pegged at a loss of 22 cents, comparing unfavorably with the year-ago earnings of 6 cents. Further, analysts polled by Zacks expect revenues of $2.60 billion, reflecting a decline of 3.8% year over year.


J. C. Penney Company, Inc. Price, Consensus and EPS Surprise

J. C. Penney Company, Inc. Price, Consensus and EPS Surprise | J. C. Penney Company, Inc. Quote

Despite several measures, we expect the retail landscape to remain tough for J. C. Penney. Also, the company’s store closures are likely to weigh on its performance. Due to change in consumer spending patterns, retailers are making investments on digitalization that might keep margins under pressure in the short term.

We note that for first-quarter fiscal 2018, the company had earlier highlighted that the cost of goods sold is likely to increase by 40 to 60 basis points (bps) from the year-ago quarter. Accordingly, the gross margin is likely to decline in the first quarter from the year-ago-quarter.

Are Strategies Potent Enough to Fight Headwinds?

J. C. Penney has taken up several strategic initiatives to drive traffic. The company, in order to enhance customer shopping experience, has been focusing on remodeling, renovating and refurbishing its stores with special focus on improving high-margin center core department that houses handbags, fashion accessories, sunglasses and fashion jewelry. The company stated that it is planning to rebrand and modernize 100 salons to Salon by InStyle.

J. C. Penney continues to work on improving its omni-channel reach. As online shopping traffic is higher than average, improving their shopping experience is the key to build a strong online portal.To drive traffic online, the company is providing convenient shipping and pickup options like pick up in store same day facility, ship to any J. C. Penney store and faster home delivery. The company has invested substantially to boost supply chain efficiency.

Meanwhile, the company’s Sephora stores, which have done exceptionally well in the past and are regarded as one of the best performing categories, are likely to maintain the uptrend in the first quarter. In fact, these shops are part of J. C. Penney’s strategy to gain a competitive edge over other beauty product retailers and drugstores that have significantly enhanced their cosmetics businesses in the recent years.

Given the aforementioned strategic initiatives, management expects comp sales in the first quarter to be at the high end of the annual guidance which is in the range of flat to up 2%.

What the Zacks Model Unveils

Our proven model does not show that J. C. Penney is likely to beat bottom-line estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

J. C. Penney has an Earnings ESP of -28.44%. Although the company’s Zacks Rank #3 increases the predictive power of ESP, we need to have a positive ESP to be confident about a bottom-line beat.

Stocks with a Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Best Buy BBY has an Earnings ESP of +2.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target TGT has an Earnings ESP of +0.32% and a Zacks Rank #3.

Kroger KR has an Earnings ESP of +4.99% and a Zacks Rank #3.

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