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J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently delivered better-than-expected first-quarter 2011 results on the heels of improved and exclusive merchandise assortments, and effective cost management. Consequently, the company raised its full year outlook.

Street analysts had over a week to ponder on the company’s scores. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Report Review

J. C. Penney’s quarterly earnings of 28 cents a share beat the Zacks Consensus Estimate of 25 cents, and jumped 12% from 25 cents earned in the prior-year quarter.

The quarterly sales of $3,943 million fell short of the Zacks Consensus Estimate of $3,964 million, and rose a marginal 0.4% from the prior-year quarter. Total sales were adversely affected by the discontinuation of the publishing of Big Book catalogs. Internet sales through jcp.com grew 6.6% to $376 million in the quarter.

Comparable-store sales jumped 3.8% during the quarter. J. C. Penney’s addition of ‘Liz Claiborne’, ‘MNG by Mango’, ‘Call it Spring’, ‘Worthington’, ‘St. John's Bay’ and ‘Modern Bride’ brands to its portfolio helped drive sales and improve traffic.

Guidance

The Plano, Texas-based retailer, J. C. Penney, guided second-quarter 2011 total sales growth between 0.5% and 1.5% and expects comparable-store sales to rise between 3% and 4%.

Management expects second-quarter 2011 earnings between 20 cents and 24 cents a share, including restructuring charges of about 6 cents. Fiscal 2011 earnings are projected in the range of $2.15 to $2.25.

(Read our full coverage on this earnings report: J. C. Penney Beats, Lifts Outlook)

Agreement of Estimate Revisions

In the last 30 days, 2 out of 11 analysts covering the stock raised their projections, whereas 3 analysts lowered theirs for second-quarter 2011. For the third quarter, 5 analysts increased their estimates with none lowering the estimate in the last 30 days.

For fiscal 2011 and 2012, 7 and 9 analysts, respectively, moved their estimates in the upward direction with none revising the estimate in the downward direction.

Magnitude of Estimate Revisions

For second-quarter 2011, the Zacks Consensus Estimate remained stagnant at 22 cents and for the third quarter it jumped by 3 cents to 34 cents a share in the last 30 days.

In the last 30 days, the Zacks Consensus Estimates climbed 15 cents to $2.22 for fiscal 2011 and soared 25 cents to $2.66 per share for 2012.

The estimates in the current Zacks Consensus for second-quarter 2011 range from a low of 20 cents to a high of 26 cents a share. For fiscal 2011, the estimates range from $2.16 to $2.34.

J. C. Penney in Neutral Lane

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 drive sales and margin trends over the long term. The company also remains on track to deliver comparable-store sales growth and boost market share. The company’s long-term growth target is to achieve earnings of $5.00 per share in 2014.

In order to enhance customer shopping experience, the company has been focusing on remodeling, renovating and refurbishing of stores as well as refreshing its website functionality due to continued migration to online shopping. We remain confident about J. C. Penney’s top-line growth driven by the launch of compelling new merchandise and the JCP Rewards program.

The in-store Sephora departments continue to draw younger and more affluent customers. During first-quarter 2011, J. C. Penney opened 23 Sephora stores, bringing the total count to 254. The Sephora concept is expected to be a significant revenue driver. The company also hinted that MNG by Mango and Call it Spring brands were now available in approximately 292 and 100 stores, respectively.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.

J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.

Currently, we have a long-term ‘Neutral’ rating on the stock. However, J. C. Penney holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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