J.C Penny (NYSE:JCP) not a good omen for Bears


A UBS analyst in mid October bashed J.C Penny’s (NYSE:JCP) selling abilities, similar concerns have been shown by others including Bears that has been voicing its concerns for the last 3 years now. UBS said that J.C Penny (NYSE:JCP) has been unreasonably optimistic with its future plans, he said that the retail company’s products were not up to mark and the new management is not qualified enough to handle the underlying issues of the company and therefore will not be able to solve the companies problems and business obstacles.

However, what the critics are not realizing is the company’s brand value and the possibility of its coming back and progressing once again. The reason why J.C Penny (NYSE:JCP) can easily bounce back is that it is not a new business. It has been in the retail market for quite a while and people are familiar with it. The issues that the company has been facing are due to the insubstantial brand, which is something that can be fixed.

Comparison of J.C Penny and Gap who was also in a similar situation:

In the beginning of 2009 Gap another huge retailer had been gone through a somewhat similar situation after losing focus and declining about 5 year in revenue. The comparable sales had gone down about 12% than previous years and the sales and profit margin was going up and down. It was a very unfavourable time for the shareholders of Gap and the company’s stock also fell even under 10$.

However, the situation for Gap is different now. The company turned things around for itself and bounced back with full force. Gap’s sales have gone up and the company’s stock trades at $37.50 now.

Obviously J.C Penny’s situation cannot be compared with that of Gap’s as they are both separate companies and faced different situations; however since both of they are in the same business we can take a look at what they went through at the time of their decline.

Gap had cut down its expenses back in 2009 when the company was undergoing problems which really helped Gap to generate more profits. The company managed to generate $980 million in annual cash flow by simply holding back its expenses. J.C Penny’s (NYSE:JCP) cash flow has not been declared yet but we know that even J.C Penny has cut down its expenses and that is the first time the company has done that in 3 years. As a result the retailer has been able to gather a decent amount of cash flow in its pocket.

Gathering cash flow is something that shows investors that the company is able to show operational flexibility when it’s required. When Gap gathered cash flow it’s used the extra money to renovate its stores and buying fresh inventory. J.C Penny (NYSE:JCP) can use the cash flow money for the same purpose.

Now the question arises that how long would it take J.C Penny (NYSE:JCP) to bounce back from the pit that the company has fallen into. Again if we take a look at Gap’s decline back in 2008 then we sees that it took the company about one year to stabilize things and another one year to start gaining profits. Again we cannot compare the two companies directly but Gap’s situation does give an idea of the time frame in which J.C Penny can aim to bounce back.

J.C Penny’s (NYSE:JCP) expansion of its products, renovation of stores and some changes in the leadership of the company show that it is following the path that Gap undertook at its low times. By generating decent and positive cash flow and keeping its fiscal house intact the company is strengthening its future in 2014 with a possibility of a fast revenue growth in 2015.