Tuesday, October 8, 2013

JCPenney Provides Update on Progress of Turnaround, Liquidity; Maxim Group Says $JCP Still "Very Risky" (Chart Update)

I'm still watching big retail (JCP and Sears) and the inverse Ackman ratio (HLF/JCP). JCPenney just released an update on its improving sales trends and financial condition, and the stock is up 2.08%. But at $7.87, $JCP is still a 'levered stub' in uncharted territory. I looked at JCP's chart and linked to a bunch of opinions and research below.

Improving Sales Trends
The Company saw improved sales trends in fiscal September, and expects this to continue throughout the remainder of the year.

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Sales for the fiscal month of September, ended October 5, were down 4.0% when compared to September 2012.  This constitutes a 580 basis point improvement over August 2013.

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Sales on jcp.com continue to trend double digits ahead of last year, and are up 18.6% in the third quarter to date. September sales on jcp.com experienced 25.3% sales growth over the same period last year.

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Women’s and Men’s apparel, fine jewelry and Women’s accessories are performing better than the Company average. Women’s apparel, the Company’s largest business, reported positive sales for the month of September.

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Gross margins continue to be impacted by lower clearance margins due to the overhang of inventory from the first two quarters of the year, higher levels of clearance units sold during the period, as well as the Company’s transition back to a promotional pricing strategy during the second quarter of 2013.

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For the month of September, units per transaction and average transaction value are above last year, while average unit retail was below last year.


Financial Condition
Last week, JCPenney closed a public offering of 84 million shares of common stock that generated approximately $785 million in net cash proceeds.  The Company’s year-end liquidity is now expected to be in excess of $2 billion, taking into account the net proceeds of approximately $785 million from the offering, as well as the previously disclosed expectation of $1.3 billion of year-end liquidity including the undrawn portion of the Company’s credit facility.

Read the full press release here. When the stock broke through $12 after the Ackman liquidation bounce, it entered into uncharted territory. So I think the stock will just bounce around between $0 and $12 until there is confirmation of a turnaround. But keep in mind that a 'run' on a retailer can happen very quickly if banks decide to pull JCP's credit line which finances its inventory (Marc Andreessen: "Category Specific Retail Chains Are Much Closer To Going Under Than You Think" (Video)). However, the recent capital raise could buy JCP some time.

Source: StockCharts.com

Recent analysis and opinions (with some bulls):


Recent catalysts that crushed the stock recently:

  • Perry Corp. Dumped Millions of $JCP Shares on 9/27, Now Owns 3.28% of JCPenney (DistressedVolatility)
  • J. C. Penney Announces Pricing of Public Offering of Common Stock (84 million shares at $9.65) (JCPenney)
  • Goldman Goes Medieval On JCPenney: Shorts Bonds; Slams Liquidity; Expects Default Risk Surge (ZeroHedge)
  • Piling On The JCPain: Citi Lowers JCP Target To $7, Questions "Adequate Cash For 2014/15", Sees $1/Share Floor (ZeroHedge)

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