J.C. Penney, Nordstrom add to mixed earnings reports from retailers
Shares of J.C. Penney (JCP) dropped in morning trading after the retailer reported quarterly revenue and same-store sales that fell short of expectations. The company also announced plans to close up to 140 stores over the next few months. Separately, higher-end peer Nordstrom (JWN) jumped after its earnings per share topped expectations and said the impact of a recent tweet from U.S. President Donald Trump was "negligible." The retailers' reports followed recent reports from others in the space, including Macy's (M) and Kohl's (KSS), which both posted lower overall sales and same-store sales in the critical holiday quarter. J.C. PENNEY: Though J.C. Penney's adjusted earnings per share of 64c was above analysts' estimates of 61c, its quarterly revenue of $3.96B fell slightly shy of the $3.98B consensus. Same-store sales for the quarter declined 0.7% from last year. In addition to earnings, J.C. Penney said it will "optimize retail operations" in 2017, which includes the closure of 130-140 store locations and two distribution centers. CEO Marvin Ellison commented that during 2016 it became "evident the stores that could fully execute the company's growth initiatives of beauty, home refresh and special sizes generated significantly higher sales, and a more vibrant in-store shopping environment'" He adds that the company's decision to close stores will "allow us to raise the overall brand standard of the company and allocate capital more efficiently." Ellison announced that in order to reduce the impact on workers, the company was instituting a voluntary early retirement program for roughly 6,000 employees. Looking ahead, J.C. Penney, which said comps were positive in the December and January period, forecast FY17 adjusted EPS of 40c-65c, with comp sales down 1% to up 1%. Analysts currently expect FY17 EPS of 56c. On its earnings conference call, Ellison said this guidance is "conservative" as the company expects elements of the retail environment to remain uncertain. He added that the company's $1.2B EBITDA goal for 2017 is "still very achievable" and sees "no red flags out there" regarding the current state of the consumer. NORDSTROM: Nordstrom, meanwhile, posted adjusted EPS of $1.37, beating analysts' estimates of $1.15, though its sales of $4.2B missed expectations of $4.35B. Total SSS for the quarter fell 0.9%. The company also called for FY17 adjusted EPS of $2.75-$3.00, a 3%-4% increase in revenue and "roughly" flat SSS for the year. Analysts currently expect FY17 EPS of $3.06. Unlike other department store peers, which have announced store closings, Nordstrom announced plans to open one full-line store and 15 new Nordstrom Rack stores this year. The retailer said the impact of President Trump's tweet earlier this month saying that Nordstrom had treated his daughter Ivanka "so unfairly" by dropping her clothing line has been "negligible" and "not really discernible one way or the other." WHAT'S NOTABLE: Mall-based retailers have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M, as well as an increase in online shopping. SECTOR PEERS: Earlier this week, sector peers Macy's and Kohl's reported lower sales and comparable sales than analysts expected. Macy's, saying that 2016 was "not the year we expected," but noted that the company made "significant progress on key initiatives that are starting to bear fruit," including improvement in its digital platforms and the refinement of its clearance and off-price strategy. Macy's reiterated that it still plans to close another 34 stores or so over the next few years. Macy's is also working to sell off some of its flagship locations. In January, Macy's said comparable sales on an owned plus licensed basis declined by 2.1% in the months of November and December combined vs. last year. Kohl's CEO Kevin Mansell said the company's sales decline was attributed to "declines in brick and mortar traffic, and offset somewhat by strength in online demand." ANALYST COMMENTARY ON NORDSTROM: Commenting on Nordstrom's results, Credit Suisse analyst Christian Buss lowered his price target on the stock to $52 from $58, citing risks like deteriorating traffic and the continued shift to lower-margin e-commerce sales, but said he believes Nordstrom represents the best-of-breed in the department store landscape. UBS analyst Michael Binetti also lowered his price target on Nordstrom, to $51 from $64, citing the "sluggish" retail environment. Binetti maintained his Buy rating due to strong gross margins, solid inventory control and several new drivers that make the company's guidance look conservative to him. Piper Jaffray analyst Erinn Murphy said it is "encouraging" to see leaner inventory and improved gross margin, but "we worry about the profitability profile of the brick & mortar stores." Baird said it will be "difficult" for Nordstrom shares to outperform until it "becomes clearer as to when/where margins will bottom." PRICE ACTION: In morning trading, J.C. Penney is down about 9% to $6.26, while Nordstrom is up over 6% to $46.70. Meanwhile, Kohl's is up about 2% and Macy's is fractionally lower, while Dillard's (DDS), another retailer that reported its results this week, is up 4%.