We often talk about picture perfect charts. Price runs from the lower left to the upper right. Those are the names to own. They possess strength, momentum, and trend.
J.C. Penney's (JCP) chart is the foil to the perfect chart. Upper right to lower left with 90% of its value erased in the past three years. The three years before that saw about 50% of the value erased.
We could retrace a full decade and there's no redeeming qualities to J.C. Penney's chart. Before chasing a 20%+ pop, ask yourself: why here? why now?
It's not like we haven't seen these big pushes over the past few years. They last about a month, at most, then turn and head lower. So, perhaps, we see $2.00 before this run ends, and that would be one heck of a move. I don't think we see it, though. My upside maximum expectation here is $1.75, but I believe those trapped in the name for the past six months are using Thursday to exit.
Basically, J.C. Penney is higher today because the results weren't as bad as everyone expected. They weren't good, though. For all of the talk about a turnaround (again), management won't provide any guidance. This screams: "We've stemmed the bleeding, but don't know how to heal the injury."
I do view the positive free cash flow in fiscal year 2019 as the biggest bullish takeaway. The company continues to close stores, reducing its bricks-and-mortar footprint, but JCP isn't exactly the go-to for e-commerce.
At this stage, I believe JCP would benefit from moving toward a low-end retail approach like an H&M or Old Navy or try to act as a wide-angle "Rack" store taking from Macy's (M) , Nordstrom (JWN) , or Dillard's (DDS) in a white-label revenue sharing arrangement.
The move with Sephora was an interesting one, but how is that going to compete against Ulta Beauty (ULTA) or stand-alone Sephora stores? Furthermore, how will it even compete with the beauty section at Nordstrom?
That being asked, I do think it can be an asset to the stores, but it needs modern marketing and a unique selling proposition. For now, I don't see one.
In the world of retail, why throw money at JCP? There are plenty of other retailers out there that aren't struggling to reinvent themselves, struggling to remain relevant, struggling to remain liquid.
This turnaround story has been told one too many times and every single one has ended as a nightmare, not a fairy tale. The old J.C. Penney is dead. Management needs to reinvent the assets remaining rather than trying to Frankenstein a dead body.
To me, JCP stands for little more than Just Cashing Pennies, because that's all the stock is going to be worth in another two to three years without a radical transformation away from the old. Nothing in the most recent earnings release hints at this shift, so JCP remains on the avoid list for me.
