J C Penney Company Inc (JCP): Analysts See Cause for Concern in Otherwise Strong Quarterly Results

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J C Penney Company Inc (NYSE:JCP) released their second quarter results yesterday, and they were a  positive sign for a company that has struggled for several years now to maintain the growth it experienced throughout the most of the 2000’s.

JC Penney JCP

J C Penney Company Inc (NYSE:JCP)’s revenue for the quarter rose by an annual 5.2% to $2.8 billion, and losses per share were cut to $0.75 from $0.93 a year ago. However, the most impressive aspect was a 6% increase in same-store sales, long considered a key metric in the retail world.

Furthermore, J C Penney Company Inc (NYSE:JCP) predicted similar gains for the current quarter. Unsurprisingly, the announcement was met with overnight enthusiasm on Wall Street, as shares rose by 10% to $10.25 in after-hours trading yesterday, although today the stock has been trading in red.

However, analysts did view aspects of yesterday’s earnings report with trepidation. Speaking to CNBC today, Deutsche Bank’s Paul Trussel expressed concern over J C Penney Company Inc (NYSE:JCP)’s rising expenses, which would require the same, likely unsustainable growth, to offset.

“[...] The expenses, which have been down now for the past year, are now planned to be up year over year in the third quarter. That is a concern. Gross margins are no longer planned to rise on a sequential basis. And comparisons get much tougher, remember Penney’s turnaround really began in the second half last year, so we’re worried about their ability to do 6% plus comp growth against what was negative 4% in third quarter last year and actually up 2% rise in sales in the fourth quarter last year,” Trussel said.

It was perhaps that skepticism that has caused J C Penney Company Inc (NYSE:JCP)’s shares to give back all of those overnight gains today and more; the stock has fallen to $9.40, a 3.8% drop from the level of yesterday’s close, which does not even factor in the overnight gains. Trussel added that he believes the stock is fairly priced around $10.00.

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