Analysts Stay Cautious On JCPenney Ahead Of Q4 Print

Baird’s Mark R. Altschwager prefers to remain cautious on J C Penney Company Inc JCP, especially the company’s top line, ahead of its Q4 results announcements, “given cyclical/secular headwinds and potential pressure from additional store closures.”

The analyst maintains an Outperform rating on the company, with a price target of $11.

Caution All Around

“We believe management is likely to offer more conservative comp guidance for F2017 versus what was outlined at last August's analyst day. That said, we continue to see a path to management's F2017 EBITDA target while current valuation reflects investor skepticism, supporting good risk/reward near $7,” Altschwager mentioned.

JCPenney reported its November-December comps on January 6 at 0.8 percent, well below the previous Q4 estimate and consensus, while reaffirming its full year adjusted EBITDA guidance of $1.2 billion.

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Q4 Expectations

Management also highlighted the positive comps from the Thanksgiving week to Christmas, as well as the strength in the outerwear, appliances, boots, Sephora, jewelry and toys categories, offset by weakness in women’s apparel.

The analyst pointed out that industry checks had been slightly mixed for January, with “sequentially improved but very choppy traffic,” as well as sequential improvement in department store retail sales, along with a sequential deceleration in SpendTrend department store data and comps among JC Penney’s retail peers.

Guidance

Altschwager expects the company’s FY 2017 guidance to reflect flat to low single digit percent comps, with slight expansion in gross margins, additional SG&A savings and capex close to $400-$425 million.

“Apparel trends will likely be the biggest swing factor for comps while store closures could present additional top-line pressure,” the analyst added.

At last check, shares of JCPenney were up 1.28 percent at $7.12.