Booking a nice gain on the short side of JCP on the sales miss. Brian McGough remains bearish on JCP for the intermediate-term TREND. -KM
JCP came in well below expectations this morning citing weather for the second consecutive week as well as a shift of promotional mailers into April - a factor the company failed to mentioned as a positive driver last month. After a handful of brand highlights in April, Sephora was the only callout in May with Liz Claiborne noticeably absent. Additionally, internet sales remain underwhelming contributing only +2.8%. However, the most notable callout (and red flag) is the absence of any comment on inventories. Last month the company dropped the verbiage that inventories were “in-line with sales trends,” this month they failed to mention inventory altogether.
With the least attractive sales/inventory spread among its peers (KSS, M, JWN – see chart below), it looks like JCP is likely to maintain its laggard status over the near-term. We remain bearish on the deparment stores and are still convinced that JC Penney is in the center of the bulls-eye as it relates to the erosion in retail margins in 2H.