JC Penney Sees Tough Holiday Ahead

JC Penney Co. (JCP) sells family apparel, jewelry, shoes, accessories, household goods, and home furnishings through its stores, catalogs and website. The company reported weak September sales and gave equally pessimistic third quarter guidance. JC Penney now expects to earn $0.50-$0.60 per share in the third quarter, down from its previous guidance of $0.70-$0.75. We reiterate our Sell rating on the shares.

The difficult macro environment is taking its toll on consumer discretionary spending and JC Penney’s results. We are heading into the important holiday shopping season, which is the worst time for any retailer to find its stores struggling to generate sales growth. That does not bode well for its earnings or its stock price. We are reducing our estimates for 2008 and 2009.

JCP shares currently trade at 7.4x our fiscal 2008 EPS estimate and 8.9x our fiscal 2009 EPS estimate. Despite the low P/E multiple, JC Penney shares have further downside, in our view. The company’s worsening sales trends heading into the holiday season will probably lead to further negative estimate revisions. Our target price is 8x our fiscal 2009 EPS estimate or $19.

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Comment by Dr. Sebastian Uremadu

2008-10-18 20:14:09

It is unusual for JC Penny’s total retail sales turnover to drop during these festive month, last qurter of the year necessitating continuous fall in its equity share price. What must have caused this unusual performance of JC Penny in the US economy?

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