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J.C. Penney: Q4 2017 Earnings Review


  • J.C. Penney reported strong holiday results, albeit with slightly negative comps in January.  The strong results helped it beat its most recent guidance update.
  • February comps are said to be noticeably improved and J.C. Penney expects Q1 2018 comps to be near +2%.
  • Guidance implies flat Adjusted EBITDA growth before accounting for real estate gains, although guidance looks a bit conservative.
  • J.C. Penney appears on track to handle its 2018 to 2020 debt maturities.

J.C. Penney (JCP) reported its Q4 2017 earnings on Friday and also provided some guidance for 2018. January's results brought down its Q4 2017 comps a bit, but the holiday season was still strong enough to result in J.C. Penney slightly exceeding its most recent full year guidance range.

J.C. Penney's 2018 guidance implies flat Adjusted EBITDA growth before the impact of real estate. This is primarily beneficial for its debt situation as it would help J.C. Penney to generate $200 million to $300 million in free cash flow during the year. The common stock is mainly looking for J.C. Penney to beat its guidance, which does appear slightly conservative this time.

Q4 2017 Results

J.C. Penney's Q4 2017 comps ended up at +2.6% after its November/December holiday update mentioned +3.4% comps at the time. That means that January's comps were a bit sluggish, estimated at approximately -1.3%. Despite the slow end to the quarter, Q4 2017 was strong enough to push J.C. Penney's full year comps to +0.1%, modestly exceeding its most recent guidance for -1.0% to 0.0% full year comps. J.C. Penney indicated that it was running some tests during January, which may have affected sales. February sales were positive and J.C. Penney believes that Q1 2018 comps could end up near +2%.

J.C. Penney managed to achieve the Q4 2017 growth without being as overly promotional as 2016, as it increased its Q4 gross margins from 33.1% in 2016 to 33.6% in 2017. This was in-line with expectations and also came despite the negative gross margin impact of increased omnichannel and appliance sales.

While SG&A was up slightly during the quarter, this also includes the impact from the 53rd week, which J.C. Penney previously estimated would add $30 million to SG&A. The 2.0% full year reduction in SG&A is

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