If you are invested in any major department store retail equity you are well aware of the absolute beating exhibited on the sector over the last several months. Some retailers are faring better than others, but by and large most have been finding their retail operation and share price under increasing pressure over the last two years. I’ve followed and forecasted the probable stock performance for many of these retailers over this time including Bed Bath & Beyond (BBBY), J.C. Penney (JCP), Target (TGT), Macy’s (M) and Dillard’s (DDS) just to name a few.  It’s no fun and I make very few friends outlining the issues with these retailers that are difficult to fix and with initiatives offered to investors by said retailers that are to the detriment of shareholders.  In this retail sector update I will be discussing the issues plaguing J.C. Penney while reviewing the company’s Q4 2016 results and outlook for 2017.

As I had previously warned investors, J.C. Penney was peaking with regards to its turnaround efforts. Having produced negative comp sales results in 2 of 3 FY2016 quarters heading into the Q4 reporting season, there was little probability that the company was going to produce anything positive during the 4^th quarter. I offered such commentary and analysis of J. C. Penney’s struggling business in 2017 in the following articles linked below for easy access:

Without any further ado, J.C. Penney did report a rather poor fundamental performance during the Q4 2016 period and FY16 as a whole.  Having said that, the company did meet its FY EBITDA goal, which is less of a consideration to investors. What JCP investors must recognize is what most institutional investors have recognized over the last 2-year period, “Retailers are being priced to sales, not earnings and/or profits”.  It has been with most department store retailers that as sales have fallen, earnings have fallen and the share price has followed.  While some retailers have been able to enact some aspects of financial engineering to prop up their stock performance, it ultimately succumbs to the pressure of the sales performance.  And J.C. Penney’s sales performance in 2016 was a far cry from what the company set out in its initial guidance for the year.  

For the fourth quarter, J.C. Penney comp sales were negative 0.7% versus last year; but on a two-year stack, the comp sales performance was a plus 3.4%. December was the best-performing month in the quarter.  The online business remained strong and delivered double-digit growth for both the quarter and the full-year. For the year, J.C. Penney achieved flat sales comps and a positive net income and over $500 million improvement for the year.