JC Penney Confirmed Fears, Stock Will Be Under Pressure

J C Penney Company Inc JCP reported disappointing same-store sales and gross margins for 1Q. Goldman Sachs’ Stephen Grambling mentioned that the results “tracked weakness across the space,” the stock may come under pressure. Then analyst placed estimates and price target under review ahead of the conference call, while leaving the stock in the Americas Sell List.

JC Penney reported an adj. EBITDA beat, with the figure of $153mn coming in higher than the GS estimate of $140mn and the consensus expectation of $135mn. Analyst Stephen Grambling pointed out, however, that the beat was driven entirely by SG&A, which declined by $93mn y/y versus expectation of a $37mn decline.

Same-store-sales were down 0.4 percent, versus the GS estimate of 2.8 percent growth, while gross margin contracted 22bps y/y, compared to expectation of a 50bps expansion.

Company Results Mirror Industry Weakness

“The comp slowed 450bp sequentially and 550bp on a 2-year stack basis, largely mirroring weakness across the group and suggesting idiosyncratic growth opportunities may be moderating,” Grambling wrote. He added that the trend seemed to be “choppy,” including declines in March and early April following a strong performance in February.

Management reiterated full-year guidance of adj. EBITDA of $1bn and SSS of 3-4 percent. Gross margin guidance was reduced from 40-60bp y/y to 10-30bp. The analyst mentioned that the reiterated guidance implied the company was assuming massive cutbacks to SG&A.