J.C. Penney (NYSE: JCP) Earnings Spark 16% Jump After Hours

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JC Penney
NYSE: JCP
Nov 21
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Price: 7.30 | Ch: 0.04 (0.5%)

Today (Wednesday), J.C. Penney Company Inc.'s (NYSE: JCP) 36-year-old tale that's been a tragedy of late missed Q4 2013 sales, but posted a smaller loss than Wall Street expected. Traders like the pleasant surprise – JCP stock is up more than 16% after hours.

The retailer reported a loss of $0.68 per share on $3.78 billion in revenue, compared to Wall Street's projected $0.85 loss per share on $3.85 billion in revenue.

A one-time tax benefit and the gain from the sale of assets allowed JCP to post a fourth-quarter profit of $35 million ($0.11 per share).

"J.C. Penney achieved what it set out to do on a number of important fronts in 2013. We stabilized our business, both financially and operationally, and restored our process disciplines, promotions, inventory levels and focus on the customer," Chief Executive Officer Myron E. Ullman III said at earnings release. "As a result, we generated positive comparable store sales in the fourth quarter and ended the year with more than $2 billion in total available liquidity. These important accomplishments reflect the progress we have made in our turnaround, which remains on course heading into 2014."

For the fiscal full year 2013, the company reported an operating loss of $1.42 billion, which includes $215 million of restructuring and management transition charges. Comparable store sales decreased 7.4%, and total sales decreased 8.7% for the year.

Same-store sales (a figure used to remove the impact of new store openings, or alternatively, to determine the impact from new store openings by comparing same store sales to overall sales) are up 2% – the first time sales rose since 2011. Penney forecasts an additional 3% to 5% rise during Q1 2014.

That said, the progress of same-store sales for the period seems relatively discouraging. After a 10% gain in November, it followed with a 2% loss in December, and a 4% loss in January. Additionally, the gain was two percentage points under Wall Street's 4% projection.

JCP stock plummeted nearly 75% after hitting its 52-week high of $21.76 per share on Feb. 25, 2013, but as previously stated, is undergoing a spark in trading after hours today on the surprise of less-drastic losses. It ended the day up 5.86% to $5.96 per share.

"With the most challenging and expensive parts of the turnaround behind us, we will focus on improving gross margin, managing expense and steadily growing our sales in 2014," Ullman said. "The goal is to deliver consistently improving financial results, and to restore J.C. Penney as a leader in American retail."

Here are the numbers in J.C. Penney's earnings today that will impact its health for the rest of 2014 and beyond…

Important Numbers in Today's J.C. Penney (NYSE: JCP) Earnings

On Feb. 18, the U.S. Department of Commerce announced its quarterly retail e-commerce sales for Q4 2013. An increase of 3.4% was seen just since Q3 2013 for a total of $69.2 billion. The number is also a 16% increase since the same quarter in 2012.

Internet sales through jcp.com grew $59 million to $1.08 billion for the year, increasing 5.8% over last year. But even though J.C. Penney reported its online sales jumped 26.3% to $381 million compared to the same quarter last year, it appears to be rapidly losing market share to competitor sites.

JCP reached a peak of $1.52 billion in online sales in 2011, but fell by a third in 2012, losing ground to the likes of Kohl's Corp. (NYSE: KSS), which rose 41% that year, and Macy's Inc. (NYSE: M).

J.C. Penney nets 8% of its sales online, compared with 15% a decade ago, including catalog sales, according to Reuters. Penney's numbers were equal to Macy's in 2010, but only two years later, Macy's had multiplied three times that amount.

"I don't see how you survive without [web sales]," Standard Life Investments senior vice president and portfolio manager Ken Murphy said to Reuters.

Additionally, J.C. Penney stands to suffer from an overall challenging U.S. retail sales environment.

On Feb. 13, U.S. retail sales – which account for 70% of economic activity – unexpectedly fell 0.4% for the month of January according to the Commerce Department. The decline marks the second straight drop after a 0.1% fall in December.

The report showed that Americans are presently spending less on clothing and that retailers experienced soft holiday sales at the end of 2013; the report even retroactively downgraded November and December retail sales numbers. Foul weather is the main culprit behind the U.S. retail sales decline over the past few months.

Finally, Penney is undergoing some much-needed internal restructuring. In January, the company announced it would close 33 stores and let 2,000 workers go by May 2014, for a total annual cost savings of around $65 million.

Fourth-quarter numbers show the company incurred $50 million in restructuring and management transition charges, including $22 million in home office and stores, $5 million in management transition and $23 million of "other."

Moving forward, JCP will need to continue to improve and capitalize on its restructuring efforts.

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