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

J.C. Penney (JCP) is scheduled to report results of its second fiscal quarter before the market open on Thursday, August 15, with a conference call scheduled for 8:30 am EDT. What to watch for: 1. TURNAROUND EFFORTS: Analysts and investors will listen for comments from the retailer on its cost cutting moves. Last 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. Last August, J.C. Penney said it plans to cut $250M in inventory by 2019. The company said last quarter that it will close 18 full-line stores in 2019 and nine ancillary home and furniture stores. It said gross margin improvement remains a "major" focus. 2. STRATEGY SHIFT: J.C. Penney announced in early February that it will stop selling major appliances in order to improve financial performance and drive profitable growth. Additionally, the struggling retailer said it will mostly stop selling furniture, instead focusing on its "legacy strengths" in apparel and "soft" home furnishings, which it said represents higher margin opportunities. Additionally, earlier this year, J.C. Penney pulled the plug on a clothing subscription service established in 2017 through a partnership with Bombfell.com that offered private label and national men's clothing brands to people who signed up for regular apparel shipments. 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. Last October, Sears (SHLD) filed for bankruptcy. At the time, the company said it intends to stay in business, keeping open stores that are profitable. Macy's (M) reported Q2 earnings per share on Wednesday that fell well below analysts' estimates, leading to a cut in the retailer's forecast. The company said on its earnings conference call that inventory was a "mounting problem" in the quarter. Meanwhile, sales at beauty retailer Sephora picked up in Q2 after a sluggish end to 2018, its parent LVMH (LVMUY) said in late July, citing its continued tie-up with J.C. Penney. "We're not in all the [JCPenney] stores but in a large amount of them. The business is not as good as it used to be but is nevertheless quite favorable," LVMH Financial Director Jean-Jacques Guiony said. 4. POTENTIAL DEBT SWAP: J.C. Penney's creditors are pushing for discussions on a potential debt swap that would give the company's new managers more time to turn the struggling retailer around, Bloomberg reported on August 7. Some of the department-store chain's bondholders are seeking to rework a portion of its $4B of debt well ahead of their maturities in an effort to avoid the last-minute brinkmanship that contributed to the bankruptcies of Toys "R" Us, Sears Holdings and Barneys New York, according to people familiar with the matter.