J.C. Penney Company, Inc. (NYSE:JCP) has been one of the more volatile stocks over the last year as it undergoes one of the biggest changes in its 100-year history. Shares rallied last February when CEO Ron Johnson announced his revamp plan, but they have been on a mostly downward trajectory since as same-store sales have cratered and its core customer demographic seems to be fleeing.
The stock jumped last week when Penney's announced the return of sales, but that move only underscores the confusion surrounding the retailer as it seems to be unsure of its new strategy. In the following excerpt from our premium research report, we take a look at three key areas for investors to watch with J.C. Penney:
3 Areas Investors Must Watch
1. Same-store sales Comparable sales are always a widely followed statistic in the retail sector, but for J.C. Penney this figure will be especially important. Investors will know the turnaround strategy is working if the retailer's comps bounce back above 2011 levels. That means overcoming the 18.7% and 21.7% drops in the first two quarters since the rebranding, which will require an increase in the 25% range. That level of same-store sales growth often takes retailers several years to accomplish, especially in the sluggish economic environment we've seen recently.
Similarly, Internet sales deserve some attention from investors as well, as those numbers have fallen even more sharply than in-store sales. Though they only make up roughly 8% of J.C. Penney's sales, online shopping is growing at a much faster rate than bricks-and-mortar retail and is also more profitable. Investors should expect that segment to be growing, and growing faster than in-store sales.
2. Walking back the strategy The decline in same-store sales indicates the current performance weakness in the turnaround strategy, but perhaps as important are management's repeated attempts to walk back the strategy.
Eliminating sales and coupons had been a key pillar of the revamp, as Johnson has said he believed that shoppers were simply "tired" of that rigmarole, but the chain has already reversed course in a number of areas. Management has recognized that a number of the phrases in the new merchandising plan, such as "best price Fridays" were confusing to customers. In August, the retailer said it would bring back "clearance" sales and stop running its "month long" specials. Johnson is attempting to retrain Penney's customers, but he seems to have recognized some of the errors in his ways, saying, "We thought 'Why are we trying to teach customers new language to shop?' We're just trying to be straightforward."