QMG has been underweight J.C. Penney (JCP) since May this year, when our data spelt out the serious challenges that existed for the US multiple retail sector. JCP fell 11% today after the company reported that same-store sales for September were weaker than expected and cut its outlook for the current quarter.
During one of the least successful analysts’ days that will be seen this year, the company cited “softer selling than expected during the month of September, and the continued difficult retail environment.” Comparable sales in Q3 are now expected to increase by low-single digits (vs a predicted rise in the mid-single digit range).
This sales level is in line with QMG sector data currently available. We saw sector sales running at around the 2%yoy mark over recent months (see chart above), with prices falling at 0.3% in August (see chart below). We do not see any respite for this sector (note Sears’ vendor problems overnight). Volumes are being supported by price weakness and margins will be affected.
Here’s the loop – you can’t micro-manage your way out of a structural shift in your market. The consumer shift to online spending (with particular increases via mobile platforms) has not only started, but is accelerating exponentially. Granted, online is a small percentage of overall retail, but its impact on pricing echos across the whole sector. Query whether multiple retailers have time to reinvent themselves.