Citigroup Global Markets is maintaining a $50 target price for shares of J.C. Penney Co. Inc.
Broadlines analyst Deborah Weinswig said her firm conducted a proprietary survey to gauge the reaction of the retailer’s shoppers to its new Fair and Square pricing strategy. Survey results indicate that shoppers like the everyday value pricing and are satisfied with the customer experience. She noted that the customers should respond favorably to the merchandise changes that are forthcoming.
“These findings give us increased confidence that J.C. Penney has the right strategy long term,” Weinswig said, adding that investors should stay the course with the stock.
Weinswig noted that the retailer still has a big opportunity to improve customer awareness of its new pricing strategy, since more than half weren’t aware of the change.
She has lowered her 2012 earnings per share estimate to $1.75 from the previous estimate of $2.16, but that’s still above the consensus of $1.59. Despite pension expense and restructuring charges, as well as a same-store sales decline for the year projected at 9 percent, Weinswig gets to the $1.75 due to an expected higher gross margin rate from the elimination of unprofitable promotions.
That same-store sales decline is due to a combination of the loss of customers who only shop promotions, as well as being out of stock in inventory early in the month for items featured in the new monthly marketing books. The analyst expects the latter problem to sort itself out in the second half as the retailer improves inventory lines and begins rolling out its new in-store shops.
Weinswig also anticipates that the retailer’s planned changes could result in a decline in sales by $1.2 billion in 2012. Of the off-mall competitors that could pick up some market share are Wal-Mart, Target and Macy’s. She didn’t think Kohl’s was positioned to benefit as inventory levels are still too lean.
Shares of J.C. Penney are currently trading in the range of $35 on the Big Board.