JCP

Financial Analysis 501: Understanding Cash-Burn Scenarios

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A version of this article appeared on our website November 20, 2013. This article is for educational purposes only and does not reflect our current opinion on J.C. Penney. Please view the firm’s 16-page report for our updated take on the firm. J.C. Penney’s (JCP) third-quarter 2013 results, released November 20, left much to be desired, despite the market’s positive reaction. In fact, the performance confirmed our greatest fear, and we are maintaining our significantly below-market fair value estimate of the firm. Investors should be cognizant, however, that we don’t expect a path directly to our below-market fair value estimate of J.C. Penney’s stock, but one that has fits and starts before an inevitable decline takes hold over the next couple years. … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

The Twilight Zone: JC Penney and Best Buy Report Better-Than-Feared Performance

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Shares of JC Penney (JCP) and Best Buy (BBY) are currently engaging in a classic “dead cat bounce” with the equity prices of both firms experiencing modest appreciation after reporting their respective fourth-quarter results recently. JC Penney is trading just over $7 per share, down from about $70 per share in 2007, while Best Buy is hovering at about $27 per share, down from more than $40 per share, a level achieved only a few months ago. We continue to believe both companies are far from healthy. What’s the news that has JC Penney’s shares spiking to $7 and change? The firm reported a loss per share of $0.68 in its fourth-quarter report, released February 26, beating estimates that had … Read more

What a Week in Retail: Some Good, Mostly Bad

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The week ending January 10 brought a plethora of news that confirmed our fears: promotional activity during the shortened holiday shopping season of 2013 wasn’t just bad, it was cutthroat. Many retailers were left unable to recover from the ice and winter storms that ravaged much of the US during December/early January. Bed Bath and Beyond (BBBY) Five Below (FIVE), Pacific Sunwear (PSUN), Sears (SHLD) and Zumiez (ZUMZ) all revealed difficult performance during the period. The variant business models of the aforementioned retailers suggest weakness was widespread. Surprisingly, even discount retailing giant Family Dollar (FDO) wasn’t able to lower prices enough to keep customers in the stores. No category seemed to be spared. Needless to say, we’re not expecting much … Read more

JC Penney’s Holiday Sales Update Leaves Much to Be Desired

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We’ve been warning investors about the seriousness of JC Penney’s (JCP) cash flow situation for some time (click here for an in-depth cash-burn breakdown). It looks now that even in-line commentary about the company’s holiday performance is being deciphered as underperformance, as shares are under significant pressure Wednesday. JC Penney reported today that the company is pleased with its performance for the holiday period, showing continued progress in its turnaround efforts. Customers responded well to the company’s offerings this holiday shopping season, both in store and online. JC Penney also reaffirmed its outlook for the fourth quarter of 2013, as previously set out in the Company’s third quarter earnings release dated Nov. 20, 2013. Though comparable sales are very important … Read more

Lampert May Be Bailing on Sears; J.C. Penney’s November Comps Showed Life

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A Schedule 13D filed by Sears (SHLD) Monday showed that CEO Eddie Lampert had cut his equity stake in the beleaguered retailer to 48.5% from a prior 55.4%. Certainly this is not reassuring the markets as recent channel checks showed further deterioration in the company’s comparable store sales trends during November. Sears is struggling to remain relevant in today’s retail environment, and Lampert’s recent selling isn’t sitting well with us about the retailer’s sustainability as an entity. The firm’s third-quarter results were atrocious, and the holiday shopping season appears to be shaping up as equally poor for Sears. J.C. Penney (JCP) made headlines Tuesday on what initially seemed to be positive news: the company’s comparable store sales grew more than … Read more

Surveying 3Q Performance Across the Retail Spectrum

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Sears There’s not much to say about Sears’ (SHLD) operational performance during its third quarter (results issued Thursday), except that it was atrocious. The firm lost more money in the most recently-reported quarter ($534 million) than it did through the first nine months of last fiscal year ($441 million). CEO Eddie Lampert has his hands full with the company’s multi-year transformation, but we think investors are hanging on to shares largely on hopes the firm will be able to monetize its real-estate portfolio in the future. Image Source: Sears But it seems that (lately) too many investors have been buying into this line of thinking, and the ‘real estate’ thesis continues to proliferate among investor psyches, particularly (now) with J.C. … Read more

Macy’s Posts Solid 3Q; Enters 4Q with Strength

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On Wednesday, Macy’s (M) reported excellent third-quarter results. Comparable store sales leapt 3.5% in the quarter, while quarterly earnings jumped 31%, to $0.47 per share. Macy’s continues to execute in its key strategies—My Macy’s localization initiative (which launched across the nation in 2009), Omnichannel integration and Magic Selling (which requires a more rigorous training for new sales associates)—and noted that it saw improvement in the sales trend in every region of the country. Operating income advanced 10.8% from the same period a year ago, as the firm’s operating margin improved to 5.7% from 5.4%. Net cash from operating activities was $819 million and capital spending was $381 million, resulting in free cash flow of $438 million in the period, or … Read more

Ladies and Gentlemen

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What you are witnessing with the Valuentum Dividend Cushion is not a normal occurrence in finance. I personally have never seen a metric with such a high level of efficacy in predicting dividend cuts. Last week, the Valuentum Dividend Cushion not only added CONSOL Energy (CNX), but it also added Weight Watchers (WTW) to the growing list of firms that it highlighted the significant risk of a dividend cut before it happened. Weight Watchers suspended its quarterly cash dividend to generate annual cash savings of about $39 million October 30. Both CONSOL Energy and Weight Watchers were highlighted in the October 1 edition of our Dividend Growth Newsletter (on page 12) as yields to avoid (download pdf here).   A Valuentum Dividend Cushion … Read more

The Power of a Valuentum Buying Index Score of 1: J.C. Penney and Domino’s Pizza Nosedive

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J.C. Penney (JCP) We believe J.C. Penney (click ticker for report: ) is one of the most overpriced – if not, the most overpriced – stock on the market today. Based on our cash-burn analysis, we think the firm has sufficient liquidity to remain a going concern only through mid-2014, where the threat of bankruptcy will become severe (absent a significant change in the trajectory of cash flows). The firm’s shares register the worst score of a 1 on the Valuentum Buying Index and are suffering greatly today. We expect downside to the low-single-digits per share and perhaps worse. Our fair value estimate at the time of this writing is $3 per share. Shares are down nearly 8% today at … Read more