J.C. Penney Falls, Again

MarketsMotley Fool

J.C. Penney (NYSE: JCP) has been struggling for years, and it continued to struggle after reporting quarterly earnings.

In this segment from MarketFoolery, host Mac Greer and analysts Andy Cross and Ron Gross go through the report's highlights (lowlights, really), what the small glimmers of hope management provided really say about the company, and how the long-term picture for J.C. Penney looks (spoiler: bad).

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A full transcript follows the video.

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This video was recorded on Aug. 16, 2018.

Mac Greer: Shares of JC Penney down more than 20% on earnings. Greater than expected losses, weaker than expected revenue. Can anything save JC Penney?

Ron Gross: We don't always get it right on this show and Motley Fool Money , but this is one we've been talking about for quite some time, about how it's really a struggle. And, you know, we commonly say, "Does the world need JC Penney?" And we often answer with a no. There's just so much competition out there. So many department stores, so many other types of retail channels that you can purchase similar items in. And they just haven't done a good job. Once again, they had to come out and lower their full-year earnings outlook. "Earnings" is a euphemism. They're actually losing money at the moment.

Kudos to them for closing stores. Sometimes these retailers do over-expand, the footprint gets too large. They did close around 140 stores or so. That's one of the reasons that you saw net sales fall 7.5% when same-store sales were actually up slightly. They had a smaller store base, which naturally leads to lower revenues overall.

They still have 860 stores left at last count. That's still a lot of JC Penney's out there. Probably too many. They don't have a CEO right now, they've got a four-person executive committee kind of running the show. If they're going to kind of turn this, they need some strong, I think, a merchant, to come in and right the ship.

Greer: I want to ask you about something that the CFO said. The CFO said that JC Penney has changed its approach to inventory management from "buying to store capacity to buying and chasing into demonstrated sales trends." OK. It sounds like they're trying to play the fast fashion game. When I see the phrase "buying and chasing," I don't know.

Gross: It's hard to get right, is the problem.

Greer: H&M, right?

Gross: It's so hard to get right. They're renewing their focus on women, particularly middle-aged moms, as they say. They're going to try to be nimble. Being nimble at the department store level is trouble.

Andy Cross: I mean, the market cap of this company is less than $600 million. Walmart does, in one day, more than $1 billion in sales. Walmart has it all going right, and JC Penney has it all gone wrong right now.

Greer: Andy Cross, is there any hope? Or, at this point at JC Penney, is it more about a graceful exit?

Cross: Yeah, I think it's about a graceful exit.

Andy Cross has no position in any of the stocks mentioned. Mac Greer has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.