KSS Kohls Corporation

J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported the sales results for the four-week period ended May 28, 2011. The company’s comparable-store sales for May 2011 inched down 1.0% with total sales plummeting 3.3% to $1,187.0 million.

The sales results were negatively impacted by the exclusion of certain marketing actions compared to the same period last year coupled with the ill-timed trends in weather.

During the period under review, The Plano, Texas-based J. C. Penney registered comparable-store sales growth across children’s, women's attire and accompaniments with the southwest region recording maximum sales.

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 its market share.

Moreover, 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 gave their cosmetic sections facelifts in the recent years. The Sephora concept instigates confidence and is expected to be a significant revenue driver. The company now targets 76 Sephora shops in fiscal 2011.

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

We remain confident about J. C. Penney’s top-line growth based on compelling new merchandise and launch of JCP Rewards program.

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.

Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, J. C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.

 
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