On The Fly: What to watch in J.C. Penney earnings report

J.C. Penney (JCP) is scheduled to report results of its fourth fiscal quarter before the market open on Friday, February 24, with a conference call scheduled for 8:30 am EDT. What to watch for: 1. COST CUTTING EFFORTS: Analysts and investors will listen for comments from the retailer on its cost cutting moves. Earlier this year, J.C. Penney reduced payroll, froze overtime and took other major cost cutting steps as it faced "an expense challenge." J.C. Penney management has said the company would continue to be "aggressive" on cost cutting. The retailer also sold its headquarters and much of the land in Plano, Texas during the quarter. 2. TRUMP EFFECT: President Donald Trump, during a meeting with retail CEOs, recently said the industry has a big "regulatory problem" that he's going to take care of, noting that he is cutting regulations in every industry. The president added that tax reform is one of the best ways to help the economy. 3. COMPETITIVE LANDSCAPE: Mall-based retailers, including J.C. Penney, have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M. The current promotional environment as well as tourism sales and a shift to e-commerce has been a focus for many retailers as of late. Piper Jaffray analyst Erin Murphy said recently that she "worries" about the underlying secular pressure Amazon (AMZN) is putting on the industry. Credit Suisse analyst Christian Buss said that the transition to ecommerce and deep-value has already disrupted store productivity, eroded profitability and shifted the marginal productivity of capital investments. Buss downgraded shares to Underperform, citing its exposure to less valuable malls and its lack of presence in more valuable malls. He also cited Penney's lagging speed to market compared to others in the space. U.S. retailers and restaurants will continue to face a competitive environment in 2017 as they navigate changing customer preferences, according to Fitch's Outlook report. 4. HOLIDAY SEASON: J.C. Penney reported an 0.8% decline in holiday period same-store sales. Chief Executive Officer Marvin Ellison said in a statement that the first three weeks of November "proved to be challenging in stores," which he noted was consistent with the broader trend in the retail industry. However, Ellison noted that business improved after Thanksgiving through the end of December and was "positive." B. Riley analysts said they were "cautious" on J.C. Penney's Q4 metrics following the November-December report. The firm said that while retail traffic was "decent" a few days before and after Christmas, "we do not believe that this late spike in business was enough to make up for ground lost earlier in the month." 5. GUIDANCE: In November, J.C. Penney lowered its FY16 SSS growth view to 1%-2% and said it expected Q4 to be the "best performing" quarter of the year. Longer-term, J.C. Penney is targeting 2017 EBITDA of $1.2B+ and 2019 EPS of $1.40-$1.55. The retailer also sees a SSS CAGR of 3% through 2019, as well as gross margin up 75-100 basis points. In January, Baird analyst Mark Altschwager said he believes J.C. Penney can reach $1.2B in EBITDA in 2017; the analyst updated his outlook on February 21, saying that while he is "cautious" on Penney's top-line trajectory given secular/cyclical headwinds and potential pressure from store closures, he sees a path to the EBITDA goal with cost cutting the big contributor.