JC Penney (JCP) has surged today, despite earnings that were pretty terrible.
Deutsche Bank’s Paul Trussell and Matt Siler explain why investors like JC Penney’s results:
Relative to expectations, JCP reported solid 3Q earnings, in our view. With SSS of -4.8% already known, we see 4 positives and 1 negative in today's print: (1) 3Q GPM was down 300 bps to 29.5%, above our 29.0% estimate and buy-side expectations of 27%-29%; (2) guidance for 4Q GPM is expected to improve sequentially and YOY (a positive vs. our estimate of 27.5% and Street at 29.6% GPM); (3) core SG&A dollars fell 7.5% YOY, more than the modest 1% reduction we forecasted; and (4) the company paid $200 million down on its revolver, suggesting it is comfortable with its liquidity position. One key item of focus for the Bears will be that inventory is up 11.5% YOY and the guidance is for inventory to be up 22% at year-end – presenting future GPM risk.
Sterne Agee’s Charles Grom and team believe time will tell for JC Penney:
The bull vs. bear debate on JC Penney continues. On the one hand, the company has shored up NT liquidity and is returning to its historical private brands/basic focus. On the other hand, while comp trends have improved directionally, we've been surprised that the "slope" of the improvement has not been greater, particularly considering the compares from LY. We remain sidelined – prefer Macy's (M) in the dept. store arena.
Shares of JC Penney have gained 7.6% to $9.38 at 3:40 p.m., while Macy’s has risen 1% to $50.92.
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