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Bear of the Day: JCPenney (JCP)


J.C. Penney Company, Inc. (JCP) has finally found a new CEO. But is it too late for the Zacks Rank #5 (Strong Sell)?

JCPenney is an apparel and home retailer with over 860 stores in the United States and Puerto Rico.

It also sells online at jcp.com.

JCPenney Gets a New CEO

After having an empty CEO position for several months, JCPenney finally announced a new leader in Jill Soltau who was CEO of JOANN Stores, the fabric retailer.

She starts Oct 15.

JCPenney's troubles really began, not with Amazon and online shopping, but with former Apple executive Ron Johnson's hire as CEO in 2011. He abruptly changed the style of retailing the company did, moving away from sales and bargains as well as eliminating coupons.

Sales plunged as loyal customers didn't understand the branding. They never really came back even though the old pricing and sales model was brought back.

The damage was done.

Soltau is the fourth CEO since the 2011 fiasco. In addition to JOANN Stores, she has also worked at Sears and Kohl's. Initially, there was some criticism that she didn't have apparel experience, which was wrong.

But even if she didn't, JOANN Stores customer is very similar to JCPenney. She knows that customer. It's the middle-aged woman. JOANN Stores and JCPenney's are often located near each other in the same shopping malls.

Is It Too Late?

JCPenney had seemed to turn it around.

By 2017, it was again seeing positive earnings as it made $0.22.

But a big miss last quarter sent the estimates spiraling lower for this fiscal year. 7 estimates were cut pushing the Zacks Consensus Estimate down to a loss of $0.71. That's an earnings decline of 422%.

Analysts are pessimistic about fiscal 2020 too but their cuts for that year were made before the CEO announcement. Still, the Zacks Consensus Estimate is calling for a loss of $0.21.

It has left many wondering if its too late to turn around the company.

Loyalty Credit Card Program to Continue

In better news, on Oct 10, JCPenney and Synchrony announced a multi-year extension of their private label credit card program and the JCPenney Mastercard Dual Card. They have leveraged the data analytics from the program for over 20 years.

Synchrony has helped JCPenney integrate credit payments into the JCPenney mobile app.

Synchrony also manages the payments for the cards for JCPenney customers.

The credit cards are an essential part of the loyalty program. Cardholders are automatically enrolled in JCPenney Rewards where they earn points faster and receive $10 rewards for future purchases. The JCPenney Mastercard holders can also earn points anywhere they use the card.

Loyalty programs are important. Retailers that have programs report that customers spend more and shop more frequently than non-reward customers. Loyalty programs keep customers, well, loyal.

JCPenney needs this now more than ever so it's a positive that this agreement was extended.

Shares Sink to Multi-Decade Lows

Shares have been weak for several years but they've taken another dive in 2018, falling 48% year-to-date.

However, since the CEO announcement, shares have rebounded off the worst of the lows.

It will take time for the new CEO to make changes. Miracles won't happen overnight. The good news is that the US economy is hot and the consumer is spending. She is taking the helm with the best possible retail conditions.

This holiday season will likely be one of the best for American retailers since the financial crisis.

The plan for the holidays was laid out by the old regime however, as holiday buying and advertising decisions are done many months in advance.

Jill Soltau's impact won't be known until next fiscal year. And even then, she will need at least a year to put her stamp on the merchandise, tone and branding of the company.

As an investor, are you will to stick around and wait?

For many, the answer will be "no." There are other retailers, such as Target (TGT), which are hitting their stride with product and efficiency. Target is expected to grow earnings by 14% this year and is trading with a forward P/E of just 15. That's pretty cheap.

JCPenney is, for now, a gamble.

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