Earnings preview: Looking at Q4, J.C. Penney has a tough road ahead

J.C. Penney Company Inc. (JCP) is scheduled to report earnings results for the fourth quarter of 2018 on Thursday, February 28, before market open. Analysts estimate earnings will decline by 73% year-over-year to $0.15 per share. Revenue is expected to total $3.8 billion, reflecting a year-over-year decline of over 5%.

The company has a mixed track record in beating earnings estimates and the stock is likely to fluctuate depending on this outcome in the fourth quarter. Looking at how things have shaped up for J.C. Penney, the retailer faces a tough road ahead in terms of boosting sales and setting itself apart from the competition.

J.C. Penney reported unimpressive holiday sales and failed to take advantage of the revenue opportunities brought on by changes in the retail industry. The company does not seem to have an elaborate plan on how to gain an edge over its competition or to improve footfall at its stores at a time when competition is very high in the retail space. There is also a huge debt load to tackle.

Earlier this month, the company decided to change its strategy by stopping appliance sales and moving the sale of furniture to its online channel and select stores in order to focus more on apparel and home furnishings which provide higher margins.

However, experts are skeptical of this move as the competition in this space is very tough and the company has already had issues dealing with excess inventory in apparel that end up going at lower prices, thereby hurting margins.

Online sales are rapidly growing and retailers are investing heavily in their digital channels. Any updates on how J.C. Penney has mapped out its digital strategy is worth watching. J.C. Penney has decided to close down some of its stores and updates on this topic are also something to keep an eye on.

In the third quarter, J.C. Penney missed consensus estimates on the top line while the bottom line came in narrower than expected. Sales dropped nearly 6% to $2.6 billion while adjusted loss per share was $0.52.

Over the past 52 weeks, J.C. Penney’s shares have fallen 70%. The majority of analysts have given the stock a rating of Hold while some have rated it as Sell.

On Tuesday, J.C. Penney’s rival Macy’s (M) reported fourth-quarter 2018 results that topped estimates but the outlook provided was below expectations.

 

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