As fitting with their recent movie collaboration, JC Penney (JCP) is hoping for a Cinderella story this week. The company is reporting earnings tomorrow and I decided to buy a few shares in anticipation of a positive report.
JC Penney has had a tough few years, with a botched re-branding campaign sending their stock and sales plummeting down. But things started to look up for the retailer later in 2014, when it committed to going back to its roots while also adapting to modern times (fun fact: it’s 113 years old).
I’m hoping that tomorrow’s report will be a positive reflection of JC Penney’s efforts, and so I’ve bought a few shares. Here are the key reasons I’m cautiously optimistic about JC Penney tomorrow:
- Earnings Growth
Last quarter, JC Penney reported a loss of 62 cents a share, vs. a loss of $1.94 a share a year-ago quarter. That also beat analysts’ estimates of a loss of 83 cents a share by 25%. The stock shot up after the positive surprise, indicating an earnings surprise is both possible and could be well received.
- Low Gas Prices
Last quarter had the benefit of holiday shopping, plus extremely low gas prices. Low gas prices not only means consumers are more likely to drive and go shopping, but that they have more money to spend once they’re in the store. That factor alone would help JC Penney with an increase in sales over a year ago, when gas prices were high.
- A new CEO
JC Penney’s last “new and exciting” CEO, Ron Johnson, was a major reason for the company’s decline. So I can see if you’re skeptical of this point. But the new CEO, Marvin Ellison has quite the resume.
Ellison is responsible for turning around Home Depot (HD) and had a stint at Target (TGT), a JC Penney competitor. He also has strong skills in omnichannel (i.e. shopping online and on mobile), supply chain, and technology, key factors JC Penney needs to take it to the next level. Ellison is slated to take over from interim CEO, Mike Ullman, in August.
- Real Estate Holdings
I’ve mentioned this in a previous post, but much of JC Penney’s true value has nothing to do with its sales. It actually owns a lot of its stores, which makes it a pseudo retail real estate juggernaut. The value of JC Penney’s property is actually worth more than its market capitalization (the number of shares times price per share), which means that essentially each share is backed over 100% by tangible assets.
The key with JC Penney is that after it spikes on positive earnings, it tends to decline again. So I’m in this one as a purely short-term earnings play. I know, I know, this goes against my resolution to be a long term investor. But I’ll still play earnings every so often, it’s too fun for me not to.