J.C. Penney making all the wrong moves

The company is losing customers to other retailers such as TJX.

By Stock Traders Daily Aug 13, 2013 10:30AM

Shoppers at a J.C. Penney store in New York, NY on October 23, 2009 (© Mark Lennihan/AP)By Neal Rau, Stock Traders Daily.

It's back to school season again, which is retail's second-most important selling period next to Christmas. Retailers like J.C. Penney (JCP), whose stock dropped more than 43% in the last year, are going to be watched closely by investors. After a drop like that, it might seem that JCP is a buy, but the report at Stock Traders Daily offers a warning. Before you try to catch a falling knife like JCP, you better do your homework. A random walk I took recently provides some insight.

This weekend I walked past a J.C. Penney at the mall. I couldn't help but think about all the negative news that the company has received recently and noticed the store was pretty empty. The signs were advertising a "back to school" sale, so I walked in to see what was on sale. The prices were low but most of the brands were generic names like "Arizona" or "Champion." Hardly brands that are popular with kids or anybody else for that matter. I remember back to school shopping when I was a kid; it was about getting clothes that were popular brands and convincing my parents to pay for them.

So if you're looking for better brands and a discount where do you go? TJ Maxx and Marshalls were the first stores to come to mind, so I checked out a TJ Maxx store on the way home. The store was packed and full of people buying four to five items of clothing or more. The prices are cheaper than JCP's sale prices and with a much better selection of popular brands. Customers were busy searching for that great deal that you have to dig for.

JCP has reported a huge decline in sales this year, and it sure looks like TJX's (TJX) TJ Maxx and Marshalls stores are benefiting from Penney's loss. The stock has the potential to run into earnings when the company reports next week if it can break above long-term resistance.

Ross Stores (ROST) is another discount retailer sure to appeal to families on a tighter budget this year. One negative thing about ROST and TJX stores is that they don't have a website where customers can look to see what's in stock before driving to the store. TJX just announced it is planning to change that this year when it launches its new website. It is investing in software that manages inventory, tracks it in real time and continuously updates the websites. CEO Carol Meyrowitz said more than a year ago that "e-commerce is clearly in our future."

This will be the second attempt at e-commerce after a 2005 failure. The company shut down its website after only a year following poor sales. That failure cost the company $15 million. In 2011, the company hired Elaine Boltz, a leading e-commerce executive. Last year, it spent about $200 million to buy online retailer Sierra Trading for its technology and expertise. The potential revenue is huge for e-commerce and the company doesn't have to worry about Amazon.com (AMZN) as much as other retailers because only 17% of T.J. Maxx products overlap with Amazon, compared with a staggering 46% for the average retailer.

The company is also targeting men as it expands its men's clothing, which currently makes up only about 10% of its inventory. TJX should also be able to leverage its recent purchase of off-price retailer Sierra Trading Post. TJX is also seeing solid performance in Europe and North America. Sales have grown in the European region over the last two years from 11% in fiscal 2011 to 13% in fiscal 2012. The retailer is also planning to increase its store count to 3,200 by fiscal 2014, with plans to expand its Homegoods stores to 825 from 750 stores. While other retailers are struggling in several countries in the European region, TJX is actually seeing increased sales and an increased store count.

The biggest benefactors of the recent struggles of J.C. Penney should be the off-price retailers. TJX releases its second quarter fiscal 2014 sales and earnings results on Tuesday, August 20, 2013. The stock is up about 21% this year and near the 52 wk high.

Stock Traders Daily has TJX strong near-term, but the stock is in play because it is testing long-term resistance; if resistance holds the stock could reverse all the way to longer term support. On the other hand, if the stock can break above resistance going into earnings it might provide a good short term trading opportunity. Some of the business taken from JCP might be built into the stock already, but the potential addition of e-commerce revenues and the expansion in Europe and into men's apparel could provide bullish guidance to move the stock higher.

Aug 13, 2013 2:27PM
Is it really the end of the world if Penney's goes out of business?  They have been cutting their own throats for years with bad marketing decisions and cheapened down merchandise.
Aug 13, 2013 11:10AM
I recently went in JC Penny's for some shoes.  Didn't see anything that I would wear.  I actually saw a lot of shoes that are not practical.  Don't think they caught on to what people need or want.  Maybe they need new buyers that actually go out and shop at other places to see what could sell.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

122 rated 1
281 rated 2
467 rated 3
722 rated 4
678 rated 5
609 rated 6
628 rated 7
464 rated 8
269 rated 9
139 rated 10

Top Picks




Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.