J.C. Penney (JCP) Q3 earnings preview: Shift in strategy adds to recovery hopes

JCPenney (NYSE: JCP) has not been able to deliver positive earnings consistently for quite some time, despite the department store operator setting strategies for a turnaround. Currently, efforts are on to transform the firm into an omnichannel platform, with improved merchandising and a better-organized store network.

Experts are of the view that the company will report a wider loss of $0.56 per share for the third quarter, on revenues of $2.51 billion. The results will be published on Friday at 7:30 am ET.

The upcoming results will be a test of the effectiveness of the ongoing efforts to turn profitable, with focus on cutting the costs associated with merchandise sales and improving margins both in stores and online. That, combined with the measures to improve store experience, with stress on competitive pricing, will likely add to the positive momentum.

Concept Store

Earlier this month, JCPenney rolled out its concept store in Texas – after conducting extensive research on customers’ tastes – with a unique portfolio and innovative features like lifestyle workshops and in-store beauty service. The new approach is expected to give customers a new experience and drive traffic.

Though JCPenney’s recent exit from the furniture and appliance categories might help in improving operational efficiency in the long term, its immediate effect on performance has not been favorable.

Challenges

Also, the rising competition and onslaught of e-commerce firms continue to be headwinds that need immediate attention. The strain on sales might worsen the company’s growing debt, leaving little room for investments in growth initiatives.

A marked deterioration in comparable store performance impacted sales negatively in the second quarter and the top-line dropped 7% to $2.6 billion. The result was a loss of $0.18 per share, on an adjusted basis.

Competitors

Among others, retail behemoth Walmart (WMT) is all set to unveil third-quarter numbers on Thursday before the opening bell, with analysts looking for earnings of $1.09 per share. Last month, Amazon (AMZN) lost significant market value after its third-quarter earnings fell short of expectations.

JC Penney’s shares have been trading below the $2-mark for more than a year. The stock shifted to recovery mode since the last earnings report, after slipping to an all-time low in August. It lost 9% so far this year.

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