J.C. Penney is running out of time for a turnaround, analyst says

J.C. Penney Co. Inc. is running out of time and money to turn around the business, said GlobalData Retail, following another quarterly report that showed losses and topline deterioration for the department store.

J.C. Penney JCP, +3.88%   stock was up 2.7% in Friday premarket trading after the company reported narrower-than-expected losses and announced it would add ThredUp shops to 30 stores across the country to sell secondhand clothing and handbags, a move meant to appeal to younger consumers.

But shares are down 67% over the past year, compared with a 13.6% gain for the S&P 500 index. SPX, +1.44%   J.C. Penney stock closed Thursday at about 58 cents. The company received a non-compliance letter from the New York Stock Exchange on Aug. 6, for the persistent sub-$1 share price, an indication it’s at risk of being delisted.

See: J.C. Penney stock tanks 12% after NYSE non-compliance letter

GlobalData Retail says the on-trend secondhand shop is a small addition that won’t have much lasting impact. ThredUp is also partnering with rival Macy’s Inc. M, -1.11%   on a secondhand push. Moreover, J.C. Penney has lost relevance, which is critical for a department store retailer.

“The question is: Can it be saved?” asked Neil Saunders, managing director of GlobalData Retail. “On this front, we are not optimistic. We are impressed with some of the steps CEO Jill Soltau — who inherited this mess — has taken so far. But we question whether they can work quickly enough or if they will deliver to the degree to save the company.”

For the 12 months ending February 2019, J.C. Penney reported losses of $255 million. Net sales shrank 7.1% to $11.66 billion.

Read: Macy’s, J.C. Penney join growing list of retailers that are tapping the secondhand market

For the most recent quarter, net loss was $48 million and sales fell 9.2% to $2.76 billion.

GlobalData says the losses coupled with the investment needs leave the company with “very little breathing space.” And that makes the next six months “critical.”

“If trading can be stabilized and if J.C. Penney pulls some big initiatives out of its hat, there may be a chance,” said Saunders. “If not, we believe it will be a clear signal that the end of the runway is fast approaching.”

See: Macy’s results indicate that the retail environment is worse than we thought, analysts say

But there’s still hope, according to some analysts, especially with finances.

“The company continues to have good liquidity to enact its turnaround with approximately $1.7 billion of liquidity at the end of the quarter,” said Christina Boni, Moody’s vice president and senior credit officer.

Philip Emma, senior analyst at Debtwire, is also upbeat, though cautious.

“While its sales continue to reflect the revenue challenges in the business, it was able to improve its gross profit margin and reduce its overhead expense,” he said.

“More importantly, it continued to show progress in reducing its level of inventory which is critical in order to continue to see gains in its merchandise profit margin,” Emma said. “The company still has a long way to go to rebuild profitability and having one positive quarter is important, but the company needs to string together several strong quarters in order to build confidence that it can remain viable.”

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