Secondary plays: SHLD, M, SKS, KSS, DDS, JWN, ROST, TJX...
JCP is expected to report Q4 earnings 2/21 before the market opens followed by conference call at 9:30am ET...
JCP Consensus: First Call consensus for Q4 EPS of $1.77 on revs of $6.39 bln; Q1 EPS of $0.80 on revs of $4.30 bln; FY08 EPS of $4.60 on revs of $19.86 bln; FY09 EPS of $4.02 on revs of $20.10 bln...
Guidance: After reporting January same store sales on 2/7, co issued Q4 EPS guidance at high end of $1.65-1.80 vs $1.65 First Call consensus. The three days prior to this report, the stock traded down ~10%, only to surprise investors with relatively good news. The stock rebounded and closed up ~8% (currently trading nearly unchanged from this 8% upside reaction)...
Expectations: Since Q1 2001, co has never missed earnings estimates, reported in-line 3 times and beat on average by $0.03. Specifically for Q4, co has beat estimates every time and on average by ~$0.05 since 2001. Gross margin (estimates for Q4 is 37.02% and FY08 is 38.91%) will be key issue with increased holiday promotions to increase store traffic and sales. The stock was punished in 2007 (lost half of its value during 2007 and is still trading down ~37%) with co issuing downside guidance 2 times. These earnings revisions are expected to end as co will likely plan this year conservatively until economic environment improves...
Briefing note: Short interest is 8%, mkt cap is $10.55 bln, float is 198.9 mln and avg volume is 6.5 mln. Co has forward P/E of 12.3 (for comparison, some competitors' forward P/E values: SHLD 23.6, M 12.3, SKS 30.4, KSS 13.2, DDS 75, JWN 12.6, ROST 13.1, TJX 14.5)...
Areas of Focus on the Call:
1) FY09 outlook (guidance tends to steer the direction of the stock since co reports same store sales with EPS guidance giving a fairly accurate idea of current qtr)
2) Gross margin (gross margin estimates for Q4 is 37.02%, FY08 is 38.91% and FY09 is 38.25%) 3) Commentary on economic sensitivity of customers
4) Update on capital allocation (if co plans to refine capital allocation plan given current environment and return to positive free cash flow)...
Recent price movement: After reporting last qtr (beat by $0.02 but issued downside guidance), co gapped down ~4% and closed down ~5%. Since reporting last qtr on 11/15, stock is trading up ~7%; since reporting same store sales and issuing upside Q4 EPS guidance on 2/7, stock is trading up 8%. Note the stock made a new 52-week low (~$33.27) on 1/9, but has since rebounded trading ~43% higher off this 52-week low...
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