JCP Stock in "Recovery Mode" but Still Not a Buy with This Glaring Number By Tara Clarke

JCP stock was up 1.95% this morning (Friday) following the retailer's release of second-quarter results after market close on Thursday. After hours on Thursday, shares rose more than 10%. Despite the jump, we're not ready to buy JCP stock. The post JCP Stock in "Recovery Mode" but Still Not a Buy with This Glaring Number appeared first on Money Morning - Only the News You Can Profit From .

JCP stock (NYSE: JCP) was up 1.95% this morning (Friday) following the retailer's release of second-quarter results after market close on Thursday. After hours on Thursday, shares rose more than 10%.

JC Penney NYSE: JCP Aug 15 11:36 AM loading chart... Price: 9.34 | Ch: -0.40 (-4.3%)

Despite the jump, we're not ready to buy JCP stock.

Here are the positive earnings numbers that don't have us convinced...

JCP Stock Spiked on These Positive Q2 Numbers

With an earnings per share (EPS) loss of $0.75 and $2.8 billion in revenue, J.C. Penney Company Inc. beat Thomson Reuters consensus estimates for an EPS loss of $0.93 and $2.79 billion in revenue. The 36-year-old company also bettered its numbers from a year ago in the same period, when it reported an EPS loss of $2.16 on revenue of $2.66 billion.

J.C. Penney's same-store sales rose 6% in the quarter - a promising improvement from its dismal same-store sales numbers the last two years. Another good signal was the company's e-commerce business, which showed 16.7% improvement compared to Q2 2013, generating $249 million in revenue.

JCP stock

"Our turnaround initiatives continue to produce improved financial results," J.C. Penney Chief Executive Officer Myron E. Ullman said of the quarterly results. "In the second quarter, we gained additional market share while significantly increasing gross margin in a highly competitive promotional environment... As we approach the completion of our turnaround, we are focused on reestablishing J.C. Penney as the premier shopping destination for the moderate consumer."

Ullman has done a remarkably good job shoring up J.C. Penney's losses. Ullman took the helm again in April 2013 after being replaced by Ron Johnson in 2011. That November, Ullman began overhauling the retailer's strategy. He announced that the stores would be "restoring initial markups necessary to support the return [to a] promotional department store strategy" and fought to get back to "the promotional pricing strategy the company is known for."

From 2011 through November 2013, JCP stock plummeted nearly 75%. Since Ullman came in and started implementing new policy, shares have gone up more than 25%.

J.C. Penney stock is certainly in recovery mode, but it's still not a "Buy" - and this number proves it...

The Scary Number That's Weighing on JCP Stock

According to the Census Bureau of the Department of Commerce data, U.S. electronic shopping sales have risen dramatically over the past decade. From 2009 to 2012, clothing and clothing accessories total e-commerce sales rose more than a 40% annually.

J.C. Penney missed the online sales wave. Its online sales rapidly lost market share to competitor sites starting in 2011 and haven't yet recovered...

The company reached a peak of $1.52 billion in online sales in 2011, but fell by a third in 2012, losing ground to the likes of Kohl's Corp. (NYSE: KSS), which rose 41% that year, and Macy's Inc. (NYSE: M).

Although the company's e-commerce business did improve 16.7% this quarter compared to Q2 2013, it generated $249 million in revenue - nowhere near its 2011 number.

But the worst, most glaring number in JCP's Q2 was online sales growth rate. It declined, coming in at 16.7% this quarter compared to 25.7% year over year in the previous quarter. At a time when retailers increasingly must rely on online sales, the drop in growth is a red flag for investors.

"I don't see how you survive without [web sales]," Standard Life Investments senior vice president and portfolio manager Ken Murphy said to Reuters earlier this year.

Moving forward, JCP will need to continue its improvements to strategy - and figure out a way to gain back online market share.

Do Thursday's earnings give you any more faith in JCP stock? Let us know on Twitter @moneymorning using #JCP or $JCP.

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The post JCP Stock in "Recovery Mode" but Still Not a Buy with This Glaring Number appeared first on Money Morning - Only the News You Can Profit From.

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