Citi: 'A Penney Saved Is A Penny Earned'

In a report published Thursday, Citi analysts maintained their Marketweight rating on J C Penney Company Inc JCP, following the company's 1Q15 results announcement.

The company reported its revenue for the quarter in-line with the estimates and the consensus, with same-store sales marginally below JC Penney's previous guidance range. Gross margin grew 350bps year-on-year, ahead of the estimates, despite increased penetration of private labels and lower sales of clearance merchandise during the quarter.

The Q1 EBITDA also came in ahead of the estimates and the consensus, driven by a decrease in SG&A expenses, which in turn was due to a reduction in store controllable costs, improvements in credit income and advertising.

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JC Penney has raised its full year 2015 guidance, with higher same-store sales, SG&S and gross margins than before. The full year EBITDA was also ahead of the FY15 estimate.

According to the Citi report, "Comps and performance is expected to accelerate in the back-half of the year vs. that seen in 1Q, as easier comps from 2H14 (less promotional-driven sales), lack of impact from discontinued brands, better clearance inventory mix and the benefit of strategic initiatives (center core improvements, footwear) start to impact results."

The analysts also expect the company to witness higher capex with lower working capital inflow, while expressing their concern regarding JC Penney's ability to meet the FY17 guidance, which depends on industry-wide improvements in currently pressured categories, such as fine jewelry and kids.