We don't buy into the financial engineering story here now inasmuch as we didn't believe in the TGT one back then (2008). - KM
Once again, JCP’s guidance isn’t quite as robust as it first appears. The headline suggests that full-year outlook was raised to $2.15-2.25 up from $2.00-$2.10. The reality is that relative to the company’s initial guidance provided at year-end, this ‘new’ outlook includes not only share repurchases (adding $0.20 in EPS), but also $35mm in additional SG&A savings (another $0.10 in EPS). By our math, that implies $0.15 of core earnings erosion. The earnings growth here continues to be largely driven by a combination of allocating capital in the form of share repurchases at the top and cost savings that include pension expense reductions. With same store sales of +3.8% coming in at the lower end of company’s guidance of 3-5% and e-commerce (+6.6%) a key driver also coming in below full-year expectations for double-digit growth – full year same store sales guidance still appears robust in our view.
We’re still convinced that JC Penney is in the center of the bulls-eye as it relates to the erosion in retail margins in 2H that is yet to be appreciated by a) management, b) earnings expectations, or c) valuation multiples.
Oh, and by the way, if I hear one more person tell me ‘I can’t short JCP in the face of Ackmanism,’ I’m going to scream (or laugh – one or the other).