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Factors Likely to Hit J.C. Penney (JCP) in Q3 Earnings

J. C. Penney Company, Inc. JCP is slated to release third-quarter fiscal 2017 results on Nov 10. The question lingering in investors’ minds is, whether this department store retailer will be able to deliver a positive earnings surprise in the quarter to be reported. Well the company reported a wider-than-expected loss in the last quarter. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at a loss of 43 cents, which is considerably worse than the year-ago period loss of 21 cents. In fact, this estimate has widened over the last 30 days. Moreover, analysts polled by Zacks expect revenues of $2,759 million, down 3.4% from the year-ago quarter.

Factors at Play

J. C. Penney has been reeling under a tough retail landscape on account of stiff competition from online retailers and waning store traffic. Owing to these hurdles, the company has been witnessing soft comparable store sales (comps) for nearly a year now. While J.C. Penney is undertaking several strategic initiatives to draw traffic, we expect the retail landscape to remain challenged and hurt the company’s profits. Also, J.C. Penney’s store closures are likely to weigh upon its performance.

Further, management recently provided an update on its third-quarter performance, wherein it also curtailed its outlook for fiscal 2017. Shares of J. C. Penney have lost 35.2% since the announcement, wherein the company stated that in an effort to clear “slow-moving” goods mostly in women’s apparel department, it increased markdowns in September and October. We believe that this remains a threat to the company’s margins.  Management also stated that following the liquidation of slow moving inventory, the company’s fund has increased. This will help to invest in fresh as well as trending merchandise categories.

For third-quarter fiscal 2017, the company expects comps to inch up 0.6%-0.8%. However, cost of goods (excluding depreciation and amortization) is likely to escalate 300-320 basis points (bps) year over year. Consequently, the company expects adjusted loss for the third quarter to be in the range of 45-40 cents per share. This is much wider than the company’s loss of 21 cents per share reported in third-quarter fiscal 2016.

What the Zacks Model Unveils?

Our proven model does not conclusively show that J. C. Penneyis likely to beat bottom-line estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

J. C. Penney currently has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). Notably, we caution against sell-rated (#5) stocks going into earnings announcement.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Zumiez Inc ZUMZ has an Earnings ESP of +0.69% and flaunts a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores Inc ROST has an Earnings ESP of +0.27% and carries a Zacks Rank #2.

Home Depot Inc HD has an Earnings ESP of +0.50% and carries a Zacks Rank #2.

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Home Depot, Inc. (The) (HD): Free Stock Analysis Report
 
Zumiez Inc. (ZUMZ): Free Stock Analysis Report
 
Ross Stores, Inc. (ROST): Free Stock Analysis Report
 
J.C. Penney Company, Inc. Holding Company (JCP): Free Stock Analysis Report
 
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