Signs Of Slow Death For This Struggling Retailer?

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The retail industry,particularly the clothing sector is characterized by heavy competition. The sales are heavily dependent upon the changing tastes and preferences of the shoppers. In the retail industry, there are many stocks performing well on a consistent basis and reporting successful sales increase. But what happens when a retailer reports a downfall in its sales for a quarter- which includes a holiday shopping season? Does it signal signs of slow death for the retailer and worries for the investors?

The struggling US retailer J.C. Penney(NYSE: JCP) announced its fourth quarter report on Feb 27.The death watch for JCP intensified as the struggling retailer reported a 31.7% drop in sales last quarter, which included the all-important holiday shopping season. $4.3 billion- Yes, That's how much the sales at the department store chain has dropped in the past 12 months. Even though weak sales were predicted for JCP by most analysts, the news from J.C. Penney was worse than expected. 

CEO Ron Johnson was brought into the company, with everyone believing he could recreate the Apple magic and turn-around the company with his retail experience. But Johnson rolled out a plan to fill the stores with branded boutiques and cut back on discounts, which led to most customers turning away from the JCP stores.

The company reported a net loss of $552 million ($2.51 per share) in the fourth quarter, as against $87 million ( $0.41 per share) in Q4 prior year.Revenue declined 28.4% to $3.8 billion. For the full fiscal year, it reported a loss of $985 million as compared to a $152 million loss the year before. Same-store sales decreased nearly 32%, worse than the 26.1% decrease it had suffered in the third quarter. Most of the retailers are seeing huge growth in the online sales department. Unlike them, JCP's online sales performance was even worse-declining by 34.4%. Inspite of such bad results and weak sales, the only glimpse of hope for its investors was that it has $930 million in cash and cash equivalents at the end of the quarter, as compared to $530 million in the third quarter.

Performance of some other players in the Retailer Industry-

T.J. Maxx and Dollar Tree both have benefited from budget-conscious holiday shoppers and posted successful sales increases. T.J.MAXX’s (NYSE: TJX) stocks have been consistently performing well over the past few years and the shares are at an all time high now, gaining more than 20% over the past 52 weeks. The company has also become quite an shareholder friendly company. It intends to increase its payouts to its shareholders by $0.58 annually, which marks the 17th consecutive year of an increase in its payout.Same-store sales for the quarter increased 2.4% at Dollar Tree. Overall sales increased by about 15%, to $2.25 billion. Earnings for DLTR were $2.68 per share-an increase of 33.3% as compared to the year ago quarter. It also has major business expansion and diversifcation plans which includes increasing the number of stores in Canada to 1000 from 140.

Macy Inc.'s(NYSE: M) earnings report for the fourth quarter also beat analyst expectations. Excluding items, it reported quarterly EPS of $2.05 as compared to $1.70 a year earlier- an increase of around 20%. The same-store sales rose 3.7% in 2012, down from 5.3% in 2011. Revenues increased by 7% to $9.35 billion. With the stocks of TJX and Macy currently trading at a trailing P/E ratio of 17.62 and 12.90 respectively ( vs an industry average of 20.17), both the stocks look good-particularly for a value investor willing to add a few retail stocks in his portfolio.

While most of the players have a significant increase in their sales, it clearly indicates that JCP has been losing its market share.

 

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The above stock analysis shows the poor performance of the shares of JCP as compared to its fellow rivals in the retail industry. While most other players in the retail industry are performing on a consistent basis, the poor performance of JCP stocks, lackluster sales and poor profit performance as compared to its other peers makes me convince that recovery will be much harder for this struggling retailer. It certainly needs a magic to bring back its customers to its stores.

Foolish Bottom Line-

With so many clothing stocks in the retail industry doing well- why would one want to invest in a strugging retailer like JCP? In my opinion- Investors with a long term investment horizon and having faith that CEO Ron Johnson would turn around this sinking ship into a profit making company should buy JCP. Otherwise with this struggling retailer showing signs of slow death-investing in its stocks would be one hell of a risky investment!

 


usha10 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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