Down In Its Own Rubble; The Sorry State Of J.C. Penney

Nov. 12, 2012 1:56 PM ETOLD COPPER CO INC. (CPPRQ)8 Comments
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Bidness Etc

J.C. Penney (JCP) is a struggling company with blurred strategic horizons and increased loses. Strategic revamping by changing layouts has been the key strategy of J.C. Penney this year. The company has tried to develop mini stores within stores but the strategy has faced many issues because of a deviation from the core competitive advantage i.e. promotions and low pricing.

Q3 earnings have not been able to change our bearish stance that we took in our previous articles. We have been standing by our bearish stance mainly because of a partial failure that the company has faced in its restructuring efforts. The forecast of the CEO of bad financial results this year added weight to our belief. Quite interestingly, the results of the third quarter seem to agree with the forecasts.

Financial Overview

From an operational perspective, the company seems to be in deep trouble as its revenue is seeing a consistent decline. When compared to the third quarter of 2011, this year has seen a drop in total revenue by 26.6%, indicating a loss in market share. The cost of goods sold has also seen a drop of 20.9%. This clearly indicates some cost control issues that the company is facing as the gross margin has gone down to 33% from 37%, reflecting that cost has not fallen as much as revenue has. Net income has not recovered yet and is negative for this quarter as well. The sell side is expecting a rise in revenue in the future but we doubt that because of some recent failures in its restructuring activities. The following graph depicts these facts.

Source: Y Charts

Similar trends can be observed in its liquidity. The company has been witnessing a drop in its cash reserves YTD. The following graph clearly shows that.

Source: Y Charts

This article was written by

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