Here's What Will Shape J. C. Penney's (JCP) Fate in Q3 Earnings

J. C. Penney Company, Inc. JCP is slated to release third-quarter fiscal 2018 results on Nov 15, before the market opens. The Zacks Consensus Estimate for the quarter under review stands at a loss of 57 cents as against the loss of 33 cents recorded in the year-ago period. The Zacks Consensus Estimate for revenues is $2.83 billion, up marginally by 0.7% from the year-ago quarter.

Let's see how things are shaping up prior to this announcement.

J. C. Penney Company, Inc. Price and EPS Surprise

J. C. Penney Company, Inc. Price and EPS Surprise | J. C. Penney Company, Inc. Quote

Factors Affecting the Stock

J. C. Penney has been in troubled waters for quite some time, losing customers to cheap sellers. Nonetheless, it has been making turnaround efforts to revive its lost sheen but none seem to be working out. Earlier, the company changed its logo, store designs, advertisements and pricing model in a bid to attract consumers. But these strategies failed to deliver desired results.

The stock has been struggling with shrinking gross margin, which is likely to remain under pressure in the third quarter. Going forward, management plans to lower enterprise inventory by at least $250 million by the end of fiscal 2019, which may hurt gross margin for the next few quarters. We note that the cost of goods sold, as a percentage of total net sales, is anticipated to increase year over year owing to management's efforts to right size inventory levels.

Unlike its rivals that have adopted strategies to revamp stores, launched brands and enhanced e-commerce initiatives to remain relevant to shoppers, J. C. Penney is trying to accommodate the changing retail trends. Analysts believe that this may be due to the company's difficult financial position. Nevertheless, management is not sitting idle and looking at every nook and cranny for growth prospects.

In this regard, J. C. Penney has taken up several strategic initiatives to transform from a brick-and-mortar retailer to an omni-channel company. In order to enhance customer shopping experience, the company has been focusing on remodeling, renovating and refurbishing its stores. The company has introduced a new value proposition, "Get Your Penney`s Worth" under which selected items of private brands are available for just a penny.

What Does the Zacks Model Say?

Our proven model does not conclusively show that J. C. Penney is likely to beat estimates this quarter. A stock needs to have both - a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

J. C. Penney has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -9.01%. We caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks with Favorable Combination

Here are some better-ranked companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Macy's M has an Earnings ESP of +20.00% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Kohl's Corp. KSS has an Earnings ESP of +6.67% and a Zacks Rank of #2.

Ross Stores ROST has an Earnings ESP of +3.45% and a Zacks Rank of #2.

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