Tag Archives: JCP

Mid-Morning Market Update: Markets Edge Higher; Walmart Tops Q1 Views

Following the market opening Thursday, the Dow traded up 0.01 percent to 24,771.99 while the NASDAQ climbed 0.04 percent to 7,401.02. The S&P also rose, gaining 0.08 percent to 2,724.60.

Leading and Lagging Sectors

Thursday morning, the energy shares rose 0.76 percent. Meanwhile, top gainers in the sector included Seadrill Limited (NYSE: SDRL), up 59 percent, and EP Energy Corporation (NYSE: EPE) up 7 percent.

In trading on Thursday, information technology shares fell 0.36 percent.

Top Headline

Walmart Inc (NYSE: WMT) reported better-than-expected results for its first quarter.

Walmart said it earned $1.14 per share in the first quarter on revenue of $120.7 billion versus Wall Street's estimate of $1.13 per share on revenue of $120.51 billion.

Walmart U.S. comp sales rose 2.1 percent, comp traffic rose 0.8 percent. Comp sales at Sam's Club rose 3.8 percent on a traffic growth of 5.6 percent. Online sales also grew 33 percent in the quarter which marks a reversal from the prior quarter's disappointing performance in the prior quarter.

Equities Trading UP

Carver Bancorp, Inc. (NASDAQ: CARV) shares shot up 71 percent to $6.25.

Shares of Loxo Oncology, Inc. (NASDAQ: LOXO) got a boost, shooting up 22 percent to $170.37. The biopharmaceutical company that focuses on medicines for patients with genetically defined cancers said its oral presentation of LOXO-292 was selected for the "Best of ASCO" program.

World Wrestling Entertainment, Inc. (NYSE: WWE) shares were also up, gaining 16 percent to $50.75. The company's "Smackdown Live" may not be renewed at NBCUniversal network and the company's "Monday Night Raw" program could be worth three times its current value elsewhere, according to a report for The Hollywood Reporter.

Equities Trading DOWN

Jounce Therapeutics, Inc. (NASDAQ: JNCE) shares dropped 31 percent to $12.23. Abstract of the Phase 1/2 ICONIC trial that evaluated JTX-2011 monotherapy as well as in combination with nivolumab showed that the company has met its target enrolment in its combination cohorts across four solid tumor types, namely gastric cancer, triple-negative breast cancer, head and neck squamous cell cancer and non-small cell lung cancer.

Shares of J. C. Penney Company, Inc. (NYSE: JCP) were down 10 percent to $2.765 after the company reported downbeat Q1 results and lowered its FY2018 guidance.

Aircastle Limited (NYSE: AYR) was down, falling around 8 percent to $21.15 following announcement of 7.9 million share secondary offering.

Commodities

In commodity news, oil traded up 0.69 percent to $71.98 while gold traded down 0.18 percent to $1,289.20.

Silver traded up 0.64 percent Thursday to $16.475, while copper rose 0.28 to $3.079.
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Eurozone

European shares were higher today. The eurozone’s STOXX 600 gained 0.21 percent, the Spanish Ibex Index rose 0.67 percent, while Italy’s FTSE MIB Index rose 0.01 percent. Meanwhile the German DAX rose 0.28 percent, and the French CAC 40 climbed 0.45 percent while U.K. shares rose 0.24 percent.

Economics

Initial jobless claims increased 11,000 to 222,000 in the latest week. Economists were projecting claims to total 215,000 last week.

The Philadelphia Fed manufacturing index rose to 34.4 for May, compared to 23.3 in April. Economists expected a reading of 21.9.

The index of leading economic indicators rose 0.4 percent for April.

The Energy Information Administration’s weekly report on natural gas stocks in underground storage is schedule for release at 10:30 a.m. ET.

Minneapolis Federal Reserve President Neel Kashkari is set to speak at 10:45 a.m. ET.

Federal Reserve Bank of Dallas President Robert Kaplan will speak at 1:30 p.m. ET.

Data on money supply for the latest week will be released at 4:30 p.m. ET.

J C Penney Company Inc Stock Remains a Speculative Buy

It’s been said that a rising tide lifts all boats. However, that may not be true in reverse. An ebbing tide sinks some boats, but can lift others. That may end up being the case with J C Penney Company Inc (NYSE: JCP), which appears to be benefiting from tough times over at Sears Holdings Corp (NASDAQ:SHLD).

JCP Stock Has Sears to Thank

After a 1.7% comparable sales increase in the third quarter, comps rose 2.6% in the most recent quarter. As I’ve often said, comparable sales increases between 1% and 3% for retail operation is fine. It’s not fantastic. It’s not blockbuster. It’s fine. However, in the case of a struggling retailer like JCP, 2.6% feels like a blockbuster increase.

Interestingly, this may have to do with the fact that Sears has virtually ceded its market share to other retailers in a number of important categories. I think were seeing this effect in the incredible sales growth at JCP in appliances, mattresses, and furniture. Those product lines saw sales growth of 30%, 60% and 40%, respectively. JCP stock management has identified 300 malls where it will pursue aggressive sales of these product lines.

Reducing Debt

The trouble facing JCP stock has been debt load. Along with other similar retailers, JCP stock management has been aggressively reallocating its capital so as to reduce the threat of debt maturities. During the quarter, JCP stock management repaid $211 million on its credit line. It repurchased $40 million of senior notes due in 2020. Just after the quarter ended, it also repaid $190 million worth of senior notes due later this year.

JCP is not done yet. It’s also close to repurchasing all of its senior notes due next year, and is 70% of the way towards repurchasing its 5.65% Senior Notes due 2020. It issued $400 million worth of 8.625% debt due in 2025 to repurchase these notes.

This leaves JCP stock with between $300 million and $350 million in cash. That should be enough to keep it going during the year. J C Penney stock traditionally runs negative free cash flow through the first three quarters of the year. However, if it continues to see sales growth in these home product lines then the cash flow situation may turn out to be more optimistic than originally projected.

The long-term problem is J C Penney remaining relevant in a retail environment that simply does not favor brick-and-mortar. Admittedly, a lot of retailers delivered upside surprises in the fourth quarter. That may very well continue going to this year as the Trump economy continues to boom.

So JCP stock is going to be pulled by crosscurrents. On the one hand, retail is moving increasingly online, yet macro economic conditions seem to favor it.

Bottom on Line JCP Stock

I don’t see JCP as a compelling turnaround story. I see it the way I’ve seen it for quite some time: it’s a speculative play.

I think the way to play J C Penney stock is as a trade. I would look to buy below $2.70 per share in increments. Then, I would turn around and sell 25% of my position beginning at three dollars per share and selling another 25% for every 25-cent increase in the stock.

Those of you who believe in potential turnaround may want to grab some shares in the mid-$2 range and just hold for a very long time. It’s entirely possible that, over time, you will see a big return.

It’s also possible that you will see that investment slowly trickle down over time.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

 

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Best Buy Co Inc Has Found Its Niche – And So Has Its Stock

The biggest fears surrounding Best Buy Co Inc (NYSE:BBY) have yet to be realized. The bear case for Best Buy stock was based on the “showroom effect.” In essence, customers would view items in Best Buy stores — and then buy them from Amazon.com, Inc. (NASDAQ:AMZN) or eBay Inc (NASDAQ:EBAY). Best Buy’s brick-and-mortar costs would prevent it from being fully price-competitive with online-only rivals, margins would compress, and BBY stock would sink.

It hasn’t played out that way. Best Buy stock has gained more than 500% from late 2012 lows just above $10. It’s doubled just since early last year. Comparable-store sales have been positive, albeit modestly so — 0.3%, 0.5%, and 0.5% in fiscal 2017, 2016, and 2015. But they’ve accelerated so far this year, to a likely 4% or so for the full year.

It appears Best Buy has found its footing. BBY stock has done the same, gaining 32% year-to-date. But nearly all of those gains came in the first half of the year. Best Buy stock actually has pulled back modestly since I argued investors should sell the news after a post-earnings jump in May.

Even a strong performance YTD and a still-cheap valuation haven’t changed my opinion since then. There are worse stocks in the market, no doubt — and in retail, in particular. But consistent earnings growth is far from guaranteed. Looking forward, I’m not yet convinced Best Buy is quite out of the woods.

The Bull Case for Best Buy Stock

Q3 earnings certainly seem to support the argument that Best Buy stock is undervalued. Even though the headline numbers missed consensus, and Q4 guidance was a bit light, the quarter looks solid, if not outright impressive.

Comparable sales rose 4.4% year-over-year, including a 22% improvement in e-commerce sales. Adjusted EPS jumped 30%. That performance came despite modest impact from hurricanes in the quarter.

Meanwhile, BBY stock still trades at about 14x FY18 (ending January) EPS. That seems far too low for that type of growth.

But if you look closer, Best Buy’s Q3 isn’t quite as impressive. A lower tax rate provided a benefit to EPS. So did a 4.5% reduction in the share count, thanks to share buybacks. Operating income, for instance, rose a slower, but still solid, 15% year-over-year.

That’s not to say it was a bad quarter. It wasn’t, by any means. The key question is whether that type of performance will continue going forward.

The Risks To Best Buy Stock

As strong as FY18 has looked through the first three quarters, the concerns here aren’t completely erased. For one, Best Buy’s apparent status as the last major electronics retailer standing isn’t necessarily a good thing. For years, customer defections from struggling and eventually bankrupt rivals like Circuit City, hhgregg, and even RadioShack have provided a tailwind to Best Buy sales. That benefit should recede going forward.

Looking beyond competition, I see concerns about what it is, precisely, that Best Buy is selling. Best Buy floors contain a lot of challenged categories. Effective pricing is declining in the mobile space, and the intense competition among providers like Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and Sprint Corp (NYSE:S) could pressure Best Buy’s commissions from smartphone contract sales.

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Sales of both desktop and laptop PCs are stalling out. TV pricing continues to come down. The steady demise of Sears Holdings Corp (NASDAQ:SHLD) has benefited Best Buy’s appliance sales: That category has been the company’s strongest over the past eleven quarters. But J C Penney Company Inc (NYSE:JCP) is now targeting that space, and Home Depot Inc (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) are redoubling their own efforts.

Overall, Best Buy’s market likely isn’t growing much, if at all. In fact, it may be shrinking. Pricing power is going to be limited by online rivals. With market-share gains likely to moderate simply because Best Buy already has dominant share, those factors suggest revenue growth here is going to be pretty minimal going forward.

Best Buy Stock Looks OK – But Not A Best Buy

Modest revenue growth probably is enough to support BBY, and maybe even a little upside. Cost control can keep margins intact. Best Buy throws off a lot of cash, which can be used to buy back shares and raise a dividend that already yields 2.4%.

But that’s not really a compelling case. And the tight range in which Best Buy stock has traded since May seems to support the idea that, for now, the market thinks the stock is priced about right. At this point, I agree. Coming out of Q2, I thought the easy money had been made in Best Buy. Six months, and two earnings reports, later, I still think that’s the case.

As of this writing, Vince Martin has no positions in any securities mentioned.

L Brands: Look Out For A Sexy Q3 Earnings Report

L Brands (NYSE: LB) will report Q3 earnings this Wednesday after market close. While retailers remain under heavy pressure and scrutiny, Q3 earnings and guidance heading into the holiday season are more important than ever. L Brands should release a strong Q3 report and outperform throughout Q4.

Improving SSS Metrics

So far, there have been a few surprise earnings releases – ex: Macys (NYSE: M) and J. C. Penney (NYSE: JCP). Although this does not mean retailers are off the hook for their poor performance this year, L Brands is coming off a hot October and improving SSS metrics. The two charts below show monthly SSS trends for L Brands (on a consolidated basis).



Source: Company Website

Interestingly, they already updated the Q3 SSS result of (1%). Backtracking to Q2 and Q1, SSS came in at (8%) and (9%), respectively, exactly what the chart shows. There should be no major surprises on their upcoming earnings release.

In addition, SSS metrics for Q4 compares against weaker 2016 metrics. December and January were the only two months in FY16 that showed negative SSS metrics. Looking ahead to Q4, assuming an as expected Q3 earnings report, LB is on track to meet FY17 EPS guidance. Back in May, LB increased their FY17 guidance after a strong Q1 report but further revised guidance in August. The revised guidance looks for EPS in the range of $3.00 – $3.20. They also guided Q2 earnings to come in between $0.40 – $0.45 versus actual Q2 earnings of $0.48.

Source: SEC Filings / Morningstar

An early prediction here, LB will beat earnings but maintain FY17 guidance. One of my biggest drivers behind this is that management indicated Q3 EPS to be at the high end of its previous guidance of $0.25 to $ 0.30.” Just like JCP did not too long ago (J. C. Penney: Why The Q3 Beat Will Continue Into Q4), management actually beat their pre-announced Q3 guidance, but held their FY17 guidance.

With a stronger-than-expected October sales performance, it would not surprise too many investors if LB beat Q3 expectations.

Q3 Notable News

Besides the stronger October showing, LB had a productive Q3.

Chart
LB data by YCharts

Concurrent with releasing October sales figures, management indicated SSS is down 6% on a YTD basis, while down only 1% during Q3. However, management attributed a 5% and 2% negative impact on sales related to exiting the swim and apparel categories.

They maintained their dividend for the 172nd consecutive dividend, paying out $0.60 per share. This represents an annualized dividend yield of 4.9%, which bodes well for a struggling retail environment.

In addition to maintaining their historic dividend, the board approved a new $250 million stock repurchase program. LB is near the end of their previous $250 million repurchasing program ($10.3 million remaining as of September 18) and the initiation of a new program is a powerful driver behind their recent stock movement.

Overall, management has done a good job navigating through tough waters this year and has managed to maintain relatively stable guidance. Their stock has performed exceptionally well since their Q2 release, despite falling nearly 50% before that.

Summary

With Q3 earnings guided towards $0.25-$0.30 and October SSS reported at +2%, we may be looking at an upcoming earnings beat for LB. Management narrowed their FY17 guidance from $3.10 – $3.40 to $3.00 – $3.20, which is likely due to a challenging retail market in addition to further insight into full year performance.

Their stock has traded around the 13x-14x range with a 3 month performance of +20%. Recent earnings reports from Macys and J. C. Penney makes a beat by L Brands more than plausible.

Look for Q3 SSS of (1%) and a potential upside earnings surprise. Don’t expect guidance to be updated but feel strong about management’s ability to deliver performance. Although there have not been too many dips recently, this is one name to continue following heading into the holiday season.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LB over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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