JC Penney Mimicking Home Depot Isn't Enough To Help Traffic Woes

Given weakness in the apparel category, J C Penney Company Inc JCP is turning towards the home category to solve its traffic woes. Citi’s Paul Lejuez said, however, that the strategy may not work. He maintained a Neutral for the company, while reducing the price target from $9 to $8.

Analyst Paul Lejuez mentioned that 4Q was tough for JC Penny, as it was for all names in the department store space. Although the company was able to manage expenses, investors are looking for signs of sustainability of a top-line turnaround, which did not happen.

Management indicated positive sales at the end of April. “We believe the entire dept store space is structurally disadvantaged, making a JCP turnaround that much harder,” Lejuez wrote.

Following HD’s Footsteps?

CEO Marvin Ellison had spent 12 years at Home Depot Inc HD and can’t be blamed for wanting to reduce JC Penney’s exposure to apparel, the analyst said. Ellison has an understanding of the home category, which has delivered a healthy performance industrywide for several years. Since the apparel category has been weak, the company would try new things in home.

Lejuez added, however, that “turning their store into “HD Penney” (figuratively speaking)” would not solve their problems. JC Penney has more than 1,000 stores that are poorly positioned. “Their poor positioning was the reason they brought Ron Johnson in to take such drastic transformative actions (many of which steered them toward home product) back in 2011/12, but it didn’t work.”

Although the recent initiatives appear more logical, they may be insufficient to cure JC Penney’s traffic problems, the analyst commented.