J.C. Penney Rises Sharply Despite Atrocious Earnings
Shares of J.C. Penney (NYSE: JCP) rose more than three percent Friday morning even after the clothing retailer reported quarterly earnings that drastically missed Wall Street analysts' expectations.
Specifically, J.C. Penney reported Friday a second-quarter adjusted loss per share of $0.37, missing the consensus analyst estimate by $0.12. The company also announced that it does not expect to meet previously issued full-year earnings projections.
These business results might seem dreadful, but last quarter's results may have been even worse.
For the first quarter, the company missed the consensus earnings per share estimate by an astounding $0.28. In the same earnings release, the company announced discontinuation of a prior $0.20 per share quarterly dividend. On May 16, the day following this abhorrent first-quarter earnings release, shares fell close to 20 percent.
"We have now completed the first six months of our transformation and while business continues to be softer than anticipated, we are conﬁdent the transformation of J.C. Penney is on track," said CEO Ron Johnson in a statement Friday.
Moreover, in the company's second-quarter conference call, Johnson said he is "confident" everyone will understand J.C. Penney's everyday value.
Short-sellers may have been scared by Johnson's confidence. Frantic short-covering may have contributed to Friday's price increase, as shares sold short comprise around 28 percent of J.C. Penney's float.
CBS reported in June that Johnson had resumed using the word "Sale." This followed a three-tiered pricing strategy which started in February.
In the call, Johnson said customers were confused about the previous pricing strategy. Now, he said, "customers get it."
The word "sale" might become increasingly important to the company, as it reported $53 million of inventory markdowns for the first-quarter and $102 million for the second-quarter.
J.C. Penney trades at a similar value to competitors Kohl's (NYSE: KSS) and Macy's (NYSE: M), as measured by forward price-to-earnings (PE) ratios. All three companies have forward PE ratios close to 10.
Unlike J.C. Penney, Kohl's and Macy's both reported better-than-expected quarterly earnings this week. Specifically, Kohl's reported second-quarter earnings per share of $1.00, beating analyst expectations by $0.04. Macy's reported second-quarter earnings per share of $0.67, beating analyst expectations by $0.02.
Shares of Kohl's fell around 1.6 percent Friday morning while shares of Macy's fell around 1.1 percent.
Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.
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