J.C. Penney (NYSE:JCP) definitely is one stock you don’t want for Christmas. JCP stock has been plagued by slowing growth and compressing margin trends over the past several years as the company has struggled to keep up with the digital commerce shift.
Meanwhile, there’s a mountain of debt on the balance sheet which puts a time constraint on the JCP turnaround and has investors worried that this company is heading for the exits like Sears (NASDAQ:SHLD).
And if JCP stock were coming back, now would be the time. After all, a tremendous amount of data over the past several days has emerged implying that the 2018 holiday shopping season got off to a record start.
Adobe Insights says that digital sales on Thanksgiving Day were up nearly 30% year-over-year, while Black Friday digital sales rose 24% and Cyber Monday digital sales climbed 18% higher.
Meanwhile, Mastercard projects that overall Black Friday sales measured $23 billion this year, up 9% year-over-year, while foot traffic analytics firm Placer.ai reports that Black Friday foot traffic across the 30 major retailers it tracks rose nearly 14%.
Black Friday Cyber Monday shopping data for JCP didn’t do anything to assuage those concerns. Foot traffic data from Placer.ai shows that JCP was one of the worst performing major retailers this holiday season, with traffic barely inching higher year-over-year. Meanwhile, search interest trends for JCP this Black Friday were weak, as were web traffic trends.
All together, JCP didn’t have a great Black Friday showing. This weak showing amid an otherwise positive retail backdrop is yet another reason that investors should avoid JCP stock.
Weak Start to the Holiday Season
All the data I’m looking at suggests that J.C. Penney got off to a weak start this holiday season.
Placer.ai, which tracks foot traffic through tens of millions of mobile devices, had a broadly bullish read on 2018 Black Friday foot traffic. Across the 30 major retailers the company tracks, foot traffic increased nearly 14% year-over-year on Black Friday.
Yet, J.C. Penney traffic inched just 1% higher during Black Friday 2018. That compares unfavorably to 3% growth at Macy’s (NYSE:M), 12% growth at Walmart (NYSE:WMT), and 16% growth at Target (NYSE:TGT).
Moreover, Google Trends data shows that search interest related to J.C. Penney dropped year-over-year this Black Friday. Meanwhile, search interest related to Walmart, Target, and Amazon (NASDAQ:AMZN) all rose year-over-year.
Also, Alexa web traffic data indicates that JCP’s website got a much smaller holiday web traffic bump this year versus last year. Walmart, Target, and Amazon all have much more favorable Alexa web traffic trends.
Overall, there is a tremendous amount of data out there which corroborates the same bear thesis: J.C. Penney didn’t have a great Black Friday/Cyber Monday, and as such, is off to a slow start this holiday season.
Fundamentals Are Only Getting Worse
This slow start is simply yet another reason to avoid JCP stock as it hovers near all time lows.
J.C. Penney is an undifferentiated, stale retailer quickly getting squeezed out of the retail game by more relevant, more convenient, and more specific digital retailers like Amazon, Wayfair (NYSE:W) and Etsy (NASDAQ:ETSY), to name a few. This has created persistent growth and margin headaches for the company.
Given infinite time and infinite resources, any retailer can re-invent itself to be a sustainable and profitable operation. But, JCP doesn’t have infinite time nor infinite resources. If anything, both of those are extremely limited.
The balance sheet is loaded up with over $4 billion in debt. All that debt has to be repaid at some point, but JCP produced just under $60 million in free cash flow last year, so this company is hardly producing enough cash to support its debt payments.
Thus, J.C. Penney is simply a ticking time bomb. Inevitably, this company will follow in the footsteps of Sears. Bankruptcy is the most likely outcome here, and as such, there still isn’t any reason to own JCP stock here and now.
Bottom Line on JCP Stock
A weak start to the 2018 holiday season underscores that J.C. Penney is the eyesore of the retail world, and as the eyesore of the retail world, JCP’s most likely outcome is bankruptcy.
As of this writing, Luke Lango was long M, WMT, TGT, and AMZN.