Friday, November 14, 2008

JCPenny (NYSE:JCP) Merchandise Giveaway; Profits Lower

I had a very timely experience with what I call "sales plan insanity" at J.C. Penny recently, where JC Penny was essentially giving inventory away for nearly nothing (almost FREE). And, when I first encountered this sales strategy first hand, I knew for certain that JCPenny's earnings were going to suffer dramatically.

But, I guess the "analysts" that cover J.C. Penny Stock (NYSE:JCP), do not bother actually visiting the department store they are "analyzing". If they had, perhaps they would not so often be incorrect in their "analyst estimates" that seem to always miss the mark, as today's Bloomberg story on JC Penny earnings stated:
Nov. 14 (Bloomberg) -- J.C. Penney Co., the third-largest U.S. department-store company, forecast earnings that trailed analysts' estimates and posted its fifth straight quarterly profit decline as shoppers cut spending on home goods and jewelry.
Third-quarter net income decreased 52 percent to $124 million, or 56 cents a share, from $261 million, or $1.17 a share, a year earlier, the department-store chain said in a statement. Sales fell 8.7 percent to $4.32 billion from $4.73 billion.
Let me clue all you Wall Street analysts in as to how insane the management at various retailer in the United States is behaving: they are selling products for next to nothing, with obviously zero margin or, quite likely, negative margin.

This is not just conjecture, but rather fact that I will demonstrate with my recent sales receipt from J.C. Penny (click image to view larger size):

This is ridiculous! J.C. Penny has been sending (in the mail) these special Sales-Event Coupons for "$10 off $10 or more". First of all, that is just stupid! Every time they send one, I pick up more free or nearly-free items. Come on management: wake up and make it $10 off $20 at least (50% off is STILL darn good, and you may actually break even on the proposition). I realize you *hope* people will come in and buy much more than $10, but in this current economic environment, that is a bet I would not take.

The last time I got a coupon in the mail, I went looking around Pennys for kicks again, to see what I could perhaps use. I stumbled upon sales for 75% off on a few Polo shirts (and that was off existing markdowns or something). And, it gets better... they had yet another promo going where you could buy one get one (BOGO) too, and none of THESE promotions were excluded on that $10-of-$10 coupon.

Look at that receipt showing the proof of this SALES INSANITY: I purchased a total of 3 shirts that originally retailed for $104.00 for a grand-total, after Sales Tax, of $5.84. Give me a break! What moron management team came up with these incentives? I can not help thinking that they would have done better just to give the inventory to charity and write it off. How can you cover the cost of goods, let alone the cost of labor, advertising, floor-space, and so on by doing this?

Well, the bottom line is that this speaks volumes as to the state of the PANIC IN RETAIL right now. Retail stocks are all beaten down on the stock market, and for good reason -- the management of most retailers has decided that, in order to show any revenue production, they will have to engage in an insane race to the bottom along with all their competitors. As such, do not be TOO surprised if these stock market "analysts" continue to miss obvious indicators that earnings are going to be terrible for a long time to come.

Perhaps some bright spots will emerge in Retail yet (aside form WalMart), but it is a bit early to tell. Even though I am very cautious about investing in retail stocks, I have taken some "Mall walks" the past few weeks on various days of the week to see if any particular retailers seem to "stand out" consistently with regard to foot-traffic and, more importantly, purchases (I look to see what brand's bags are being carried around the Mall by people - if any one brand stands out).

I spotted a couple retailers that have my interest, like New York & Company (NYSE:NWY) being one I noticed decent store / Mall activity in, and a couple others. In the case of NWY, their stock is trading for around $2.00, so for the price I paid for my three uber-discount JC Penny shirts, I could purchase nearly 3 shares (or, at the original retail price of those shirts, I could purchase 50 shares). This puts the retail pricing strategy into perspective even more perhaps.

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