J.C. Penney Company, Inc. (JCP): Falling Knife or Screaming Value?

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Source: J.C. Penney.

J.C. Penney Company, Inc. (NYSE:JCP) stock fell by about 3% last Friday after the struggling retailer reported earnings that fell short of analysts’ expectations.

However, while the shares currently sit nearly 50% below their levels this time five years ago, they have risen more than 24% over the past month.

So is J.C. Penney Company, Inc. (NYSE:JCP) stock a falling knife, or a screaming value?

The numbers
For the quarter, J.C. Penney Company, Inc. (NYSE:JCP) posted a staggering net loss of $348 million, or $1.58 per share. When you exclude $72 million in expenses — including $56 million related to the company’s restructuring and $16 million from the ouster of CEO Ron Johnson — its adjusted net loss came to a still-painful $289 million, or $1.31 per share.

Total first-quarter sales fell 16.4% year over year to $2.635 billion, hurt by comparable-store sales, which plummeted a whopping 16.6%. Gross margin continued to decline, this time falling to 30.8% and “negatively impacted by lower-than-expected sales, a higher level of clearance merchandise sales and a return to some promotional activity towards the end of the quarter,” according to its earning report.

Operating cash flow worsened as J.C. Penney Company, Inc. (NYSE:JCP) used $752 million during the quarter, compared to negative operating cash flow of $577 million in the first quarter of 2012. In addition, the company used $196 million in investing activities last quarter, including $214 million in capital expenditures and up from $107 million during the same period last year.

When all was said and done in March, J.C. Penney Company, Inc. (NYSE:JCP)’s net decrease in cash during the quarter came to $109 million (compared with a $668 million decrease in cash during the same period last year), leaving the company with $821 million in cash and equivalents and $3.826 billion in debt. In addition, remember J.C. Penney managed to buy itself more time by entering into a five-year $1.75 billion loan facility with Goldman Sachs Group, Inc. (NYSE:GS), expected to close during the second quarter.

Could “less bad” actually be good?
In the end, while J.C. Penney Company, Inc. (NYSE:JCP) stock and its results do look like a veritable train wreck over the past year, there’s a silver lining in that they represent an undeniable improvement over J.C. Penney’s spectacular failure during the previous quarter.

To management’s credit, J.C. Penney did also give the market a heads-up last week, so the first-quarter results weren’t all that surprising.

Even so, just a couple of months ago I was willing to entertain the possibility that J.C. Penney might actually still be able to make investors rich. However, that argument hinged on the fact the company was only a year and a half into Ron Johnson’s radical four-year turnaround plan. Alas, as I also mentioned last week, the company’s board wasn’t willing to wait another quarter for the fruits of that plan to materialize, so they fired Johnson to bring in former CEO Mike Ullman.

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