Shares of J. C. Penney Company Inc. (JCP - Analyst Report) are trading up 7% in the pre-market session as the company reported narrower-than-expected loss for the second-quarter of fiscal 2015. Adjusted loss of 41 cents per share came in much narrower than the Zacks Consensus Estimate of a loss of 50 cents and loss of 75 cents reported in the prior-year quarter.
Including one-time items, quarterly loss was 45 cents per share, compared with a loss of 56 cents per share in the year-ago period.
Also, revenues of $2,875 million came above the Zacks Consensus Estimate of $2,862 million and grew 2.7% year over year. Men’s, Home, Sephora and Fine Jewelry were the best performing categories. Comparable-store sales (comps) increased 4.1% compared with 6% growth in the year-ago quarter. Performance of Sephora stores remained strong with double-digit increase in comps. Regionally, sales improved all over, especially in the western and central regions of the country.
Gross profit during the quarter surged 5.7% to $1,065 million, whereas gross margin expanded 100 basis points to 37% due to improved margin on promotional and clearance sales.
Further, the company’s selling, general and administrative (SG&A) expenses decreased 6.5% to $901 million. As a percentage of sales, SG&A improved 310 bps to 31.3%.
J. C. Penney’s operating loss of $38 million narrowed significantly from a loss of $70 million in the year-ago period. Adjusted EBITDA improved to $134 million from $39 million in the prior-year quarter.
Other Financial Details
J. C. Penney ended the quarter with cash and cash equivalents of $973 million, long-term debt of $5,225 million and shareholders’ equity of $1,660 million. Merchandise inventory levels shot up 5.5% to $3,005 million.
Moreover, the company generated negative free cash flow of $53 million in the reported quarter as against free cash flow of $76 million in the prior-year quarter. The company incurred capital expenditures of $95 million in the quarter.
Guidance
For 2015, management continues to expect comps to increase in the band of 4–5%. Moreover, given the sound cost cutting efforts in place, SG&A expenses are expected to decrease by $120 million year over year as against $100 million projected earlier. Further, with good results in tow, management has also raised the EBITDA guidance. EBITDA is expected to be $620 million for the fiscal as against $600 million projected earlier.
The company expects gross margin to improve 100—150 bps in fiscal 2015 and free cash flow generation in the year to be even with fiscal 2014. Capex is estimated to be in the range of $250—$300 million.
At present, J.C. Penney carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other stocks in the retail space worth considering include American Eagle Outfitters, Inc (AEO - Analyst Report), DSW Inc. (DSW - Snapshot Report) and Foot Locker, Inc. (FL - Snapshot Report). While American Eagle sports a Zacks Rank #1 (Strong Buy), DSW and Foot Locker carry a Zacks Rank #2.
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