KSS Kohls Corporation

We maintain our long-term Outperform recommendation on J. C. Penney Company Inc. (JCP) which is one of the leading retailers of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings.

J. C. Penney’s well diversified supplier base, compelling private and national brands, marketing campaigns, point-of-sale technology initiatives as well as effective cost and inventory management should bode well for sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost market share.

Earlier, the company had posted better-than-expected fourth-quarter 2010 results. The quarterly earnings of $1.23 per share handily beat the Zacks Consensus Estimate of $1.07, and shot up 20.6% from $1.02 earned in the prior-year quarter. Total sales of $5,703 million also came ahead of the Zacks Consensus Estimate of $5,638 million, and rose 2.8% from the year-ago quarter.

Comparable-store sales jumped 4.5% during the quarter, beating management’s own target of 3% to 4% growth. J. C. Penney’s addition of ‘Liz Claiborne’, ‘MNG by Mango’ and ‘Call it Spring’ brands to its portfolio helped drive sales and improve traffic.

The Plano, Texas-based retailer, J. C. Penney has projected comparable-store sales growth between 3% and 5% for the first quarter and in the low-to-mid single-digit range for fiscal 2011.

The in-store Sephora departments continue to attract younger and more affluent customers. These are part of J.C. Penney's strategy to gain competitive advantage over drug stores, which have given their cosmetic sections a facelift in recent years.

The company now targets 76 Sephora shops in fiscal 2011, expecting it to be a significant revenue driver. The company also hinted at making ‘MNG by Mango’ and ‘Call it Spring’ brands available in approximately 500 J. C. Penney stores by the end of 2011.

The company has been focusing on remodeling, renovating and refurbishing its stores in order to enhance customers’ shopping experience. To that end, it also refreshes its website functionality, keeping in mind the continued migration to online shopping.

We remain confident about J. C. Penney’s top-line growth based on compelling new merchandise and the launch of JCP Rewards program. Management guided total sales growth in the low single-digit range and earnings between $2.00 and $2.10 for fiscal 2011.

J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), holds a Zacks #1 Rank translating into a short-term ‘Strong Buy’ recommendation.

 
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