Tag Archives: JCP

Why J.C. Penney, NetEase, and Jounce Therapeutics Slumped Today

Thursday was a relatively quiet day on Wall Street, and action in different parts of the market showed mixed signals for investors. On one hand, small-cap stocks moved higher, with key benchmarks in that area hitting record highs. Yet the better-known large-cap stock indexes like the S&P 500 gave up early gains. Looking more closely at individual stocks, some companies suffered from bad news that sent their shares falling. J.C. Penney (NYSE:JCP), NetEase (NASDAQ:NTES), and Jounce Therapeutics (NASDAQ:JNCE) were among the worst performers on the day. Here’s why they did so poorly.

J.C. Penney can’t keep up

Shares of J.C. Penney dropped 12%, disappointing investors who had hoped that the discount department store chain would be able to match solid performance from a key industry peer yesterday. Penney suffered a 4% drop in revenue during its first quarter, and even though that came from the closing of almost 140 locations last year, comparable-store sales gains amounted to just 0.2%. Penney’s bottom line swung to a loss on an adjusted basis, due largely to weak margin figures. CEO Marvin Ellison blamed unseasonably cold weather in the early spring for the shortfall, as it left shoppers unmotivated to get a jump on warmer-weather spring and summer fashions. With Penney having cut its guidance on earnings for the full year, investors have to worry about another shoe dropping later in 2018.

J.C. Penney location with outside entrance, shown without customer traffic.

Image source: J.C. Penney.

Game over for NetEase’s growth?

NetEase stock sank over 7% after the company reported first-quarter financial results. Revenue growth for the Chinese video game and e-commerce giant slowed to just 4%, and big boosts in spending sent adjusted net income down 70% compared to the year-earlier quarter. Most of the weakness came from NetEase’s core video game segment, where some of the company’s self-developed games didn’t perform up to expectations. E-commerce efforts continued to go well, but even though that portion of the business is growing, it’s not big enough to overcome challenges with the game division. Until NetEase can demonstrate that it can compete in an increasingly tough environment in China, investors could remain nervous about its prospects.

Jounce gets jounced

Finally, shares of Jounce Therapeutics plunged 35%. The clinical-stage immunotherapy specialist suffered a double whammy, presenting data that wasn’t as upbeat as hoped and also receiving an analyst downgrade. Jounce’s phase 1/2 trial of its JTX-2011 candidate cancer treatment showed good tolerance for the treatment across patients with different types of solid tumors, but many of its response rate metrics weren’t as strong as those watching the company had wanted to see. Analysts at Wells Fargo were especially downbeat, cutting their rating on the biotech stock from outperform to market perform and slashing price targets by 65% to $13 per share. Many have hoped that Jounce would get bought out, but unless that happens, some investors seem scared that further declines are possible.

10 Stocks To Watch For May 17, 2018

Some of the stocks that may grab investor focus today are:

Wall Street expects Walmart Inc. (NYSE: WMT) to report quarterly earnings at $1.13 per share on revenue of $120.51 billion before the opening bell. Walmart shares gained 1 percent to $86.99 in after-hours trading.
Analysts expect Applied Materials, Inc. (NASDAQ: AMAT) to post quarterly earnings at $1.14 per share on revenue of $4.45 billion after the closing bell. Applied Materials shares rose 0.15 percent to $55.25 in after-hours trading.
Jack in the Box Inc. (NASDAQ: JACK) reported downbeat results for its second quarter. Comps were down 0.1 percent in the quarter. The company sees third-quarter comps coming in flat to up 1 percent. Jack in the Box shares dropped 3.03 percent to $88.60 in the after-hours trading session.
Before the opening bell, Dillard's, Inc. (NYSE: DDS) is estimated to report quarterly earnings at $2.77 per share on revenue of $1.46 billion. Dillard's shares rose 0.14 percent to $72.10 in after-hours trading.
Analysts are expecting Childrens Place Inc (NASDAQ: PLCE) to have earned $2.21 per share on revenue of $444.14 million in the latest quarter. Childrens Place will release earnings before the markets open. Childrens Place shares gained 0.29 percent to $138.40 in after-hours trading.

Find out what's going on in today's market and bring any questions you have to Benzinga's PreMarket Prep.

Cisco Systems, Inc. (NASDAQ: CSCO) reported better-than-expected results for its third quarter. The company sees fourth quarter earnings in the range of 68 cents-70 cents with sales growth of 4-6 percent. Cisco shares declined 3.57 percent to $43.55 in the after-hours trading session.
After the markets close, Nordstrom, Inc. (NYSE: JWN) is projected to post quarterly earnings at $0.44 per share on revenue of $3.46 billion. Nordstrom shares rose 0.08 percent to $51.09 in after-hours trading.
Landcadia Holdings Inc (NASDAQ: LCA) and Waitr announced plans to merge, under which Landcadia would buy Waitr for $308 million. Landcadia shares rose 0.99 percent to $10.20 in after-hours trading.
Analysts expect J. C. Penney Company, Inc. (NYSE: JCP) to report quarterly loss at $0.2 per share on revenue of $2.63 billion before the opening bell. J. C. Penney shares fell 0.65 percent to $3.05 in after-hours trading.
Acxiom Corporation (NASDAQ: ACXM) reported stronger-than-expected results for its fourth quarter, but issued weak FY19 guidance. Acxiom shares dipped 10.01 percent to $24.80 in the after-hours trading session.

A Peek Into The Markets: US Stock Futures Down Ahead Of JC Penney Earnings

Pre-open movers

U.S. stock futures traded lower in early pre-market trade, ahead of earnings from J. C. Penney Company, Inc. (NYSE: JCP). Data on initial jobless claims for the latest week and the Philly Fed general conditions index for May will be released at 8:30 a.m. ET. The index of leading economic indicators for April is schedule for release at 10:00 a.m. ET. Minneapolis Federal Reserve President Neel Kashkari is set to speak at 10:45 a.m. ET, while Federal Reserve Bank of Dallas President Robert Kaplan will speak at 1:30 p.m. ET.

Futures for the Dow Jones Industrial Average fell 24 points to 24,716.00, while the Standard & Poor’s 500 index futures declined 4.75 points to 2,718.25. Futures for the Nasdaq 100 index declined 28.50 points to 6,910.25.

Oil prices traded higher as Brent crude futures rose 0.74 percent to trade at $79.87 per barrel, while US WTI crude futures gained 0.88 percent to trade at $72.12 a barrel. The Energy Information Administration’s weekly report on natural gas stocks in underground storage is schedule for release at 10:30 a.m. ET.

 

A Peek Into Global Markets

European markets were higher today, with the Spanish Ibex Index rising 0.30 percent, STOXX Europe 600 Index gaining 0.13 percent and German DAX 30 index gaining 0.26 percent. The UK's FTSE index was trading higher by 0.18 percent, while French CAC 40 Index rose 0.37 percent.

In Asian markets, Japan’s Nikkei Stock Average rose 0.53 percent, Hong Kong’s Hang Seng Index slipped 0.54 percent, China’s Shanghai Composite Index dropped 0.48 percent and India’s BSE Sensex slipped 0.67 percent.

Broker Recommendation

Analysts at Barclays upgraded The Coca-Cola Company (NYSE: KO) from Equal-Weight to Overweight.

Coca-Cola shares rose 0.91 percent to $41.93 in pre-market trading.

Breaking news

Walmart Inc (NYSE: WMT) reported better-than-expected results for its first quarter.
Childrens Place Inc (NASDAQ: PLCE) reported downbeat results for its first quarter.
Jack in the Box Inc. (NASDAQ: JACK) reported downbeat results for its second quarter. Comps were down 0.1 percent in the quarter. The company sees third-quarter comps coming in flat to up 1 percent.
Cisco Systems, Inc. (NASDAQ: CSCO) reported better-than-expected results for its third quarter. The company sees fourth quarter earnings in the range of 68 cents-70 cents with sales growth of 4-6 percent.

Earnings Scheduled For May 17, 2018

Walmart Inc. (NYSE: WMT) is estimated to report quarterly earnings at $1.13 per share on revenue of $120.51 billion.
J. C. Penney Company, Inc. (NYSE: JCP) is expected to report quarterly loss at $0.2 per share on revenue of $2.63 billion.
Dillard's, Inc. (NYSE: DDS) is projected to report quarterly earnings at $2.77 per share on revenue of $1.46 billion.
The Children's Place, Inc. (NASDAQ: PLCE) is estimated to report quarterly earnings at $2.21 per share on revenue of $444.14 million.
Manchester United plc (NYSE: MANU) is expected to report quarterly loss at $1.35 per share on revenue of $193.67 million.
Teekay Corporation (NYSE: TK) is estimated to report quarterly loss at $0.08 per share on revenue of $296.76 million.
KEMET Corporation (NYSE: KEM) is projected to report quarterly earnings at $0.41 per share on revenue of $306.72 million.
Vascular Biogenics Ltd. (NASDAQ: VBLT) is estimated to report a quarterly loss at $0.21 per share.
Teekay Offshore Partners L.P. (NYSE: TOO) is expected to report quarterly earnings at $0.04 per share on revenue of $272.04 million.
Albireo Pharma, Inc. (NASDAQ: ALBO) is expected to report quarterly earnings at $1.77 per share on revenue of $31.32 million.

 

Companies Reporting After The Bell
Applied Materials, Inc. (NASDAQ: AMAT) is projected to post quarterly earnings at $1.14 per share on revenue of $4.45 billion.
Nordstrom, Inc. (NYSE: JWN) is estimated to post quarterly earnings at $0.44 per share on revenue of $3.46 billion.
Raven Industries, Inc. (NASDAQ: RAVN) is expected to post quarterly earnings at $0.49 per share on revenue of $117.04 million.
21Vianet Group, Inc. (NASDAQ: VNET) is projected to post quarterly loss at $0.05 per share on revenue of $152.66 million.
Orion Engineered Carbons, S.A. (NYSE: OEC) is expected to post quarterly earnings at $0.49 per share on revenue of $370.91 million.
Taro Pharmaceutical Industries Ltd. (NYSE: TARO) is projected to post quarterly earnings at $1.51 per share on revenue of $186.59 million.
voxeljet AG (NYSE: VJET) is estimated to post quarterly loss at $0.39 per share on revenue of $6.12 million.

Mid-Day Market Update: Baozun Rises Following Q1 Results; Jounce Therapeutics Shares Plummet

Midway through trading Thursday, the Dow traded up 0.15 percent to 24,805.86 while the NASDAQ climbed 0.26 percent to 7,417.56. The S&P also rose, gaining 0.25 percent to 2,729.24.

Leading and Lagging Sectors

On Thursday, the energy shares rose 1.34 percent. Meanwhile, top gainers in the sector included Seadrill Limited (NYSE: SDRL), up 46 percent, and Sanchez Energy Corporation (NYSE: SN) up 8 percent.

In trading on Thursday, real estate shares fell 0.34 percent.

Top Headline

Walmart Inc (NYSE: WMT) reported better-than-expected results for its first quarter.

Walmart said it earned $1.14 per share in the first quarter on revenue of $120.7 billion versus Wall Street's estimate of $1.13 per share on revenue of $120.51 billion.

Walmart U.S. comp sales rose 2.1 percent, comp traffic rose 0.8 percent. Comp sales at Sam's Club rose 3.8 percent on a traffic growth of 5.6 percent. Online sales also grew 33 percent in the quarter which marks a reversal from the prior quarter's disappointing performance in the prior quarter.

Equities Trading UP

Carver Bancorp, Inc. (NASDAQ: CARV) shares shot up 88 percent to $6.88.

Shares of Loxo Oncology, Inc. (NASDAQ: LOXO) got a boost, shooting up 21 percent to $168.56. The biopharmaceutical company that focuses on medicines for patients with genetically defined cancers said its oral presentation of LOXO-292 was selected for the "Best of ASCO" program.

Baozun Inc. (NASDAQ: BZUN) shares were also up, gaining 17 percent to $52.85 after reporting Q1 results.

Equities Trading DOWN

Jounce Therapeutics, Inc. (NASDAQ: JNCE) shares dropped 32 percent to $12.02. Abstract of the Phase 1/2 ICONIC trial that evaluated JTX-2011 monotherapy as well as in combination with nivolumab showed that the company has met its target enrolment in its combination cohorts across four solid tumor types, namely gastric cancer, triple-negative breast cancer, head and neck squamous cell cancer and non-small cell lung cancer.

Shares of J C Penney Company Inc (NYSE: JCP) were down 9 percent to $2.79 after the company reported downbeat Q1 results and lowered its FY2018 guidance.

Syndax Pharmaceuticals, Inc. (NASDAQ: SNDX) was down, falling around 21 percent to $8.76 after the company issued updated results from Phase 2 ENCORE trial of entinostat in combo with KEYTRUDA.

Commodities

In commodity news, oil traded up 0.45 percent to $71.81 while gold traded down 0.22 percent to $1,288.60.

Silver traded up 0.67 percent Thursday to $16.48, while copper rose 0.65 to $3.0905.

Eurozone

European shares were higher today. The eurozone’s STOXX 600 gained 0.49 percent, the Spanish Ibex Index rose 0.83 percent, while Italy’s FTSE MIB Index rose 0.11 percent. Meanwhile the German DAX rose 0.83 percent, and the French CAC 40 climbed 0.67 percent while U.K. shares rose 0.60 percent.

Economics

Initial jobless claims increased 11,000 to 222,000 in the latest week. Economists were projecting claims to total 215,000 last week.

The Philadelphia Fed manufacturing index rose to 34.4 for May, compared to 23.3 in April. Economists expected a reading of 21.9.

The index of leading economic indicators rose 0.4 percent for April.

Domestic supplies of natural gas increased 106 billion cubic feet for the week ended May 11, the U.S. Energy Information Administration reported. Analysts expected a gain of 104 billion cubic feet.

Federal Reserve Bank of Dallas President Robert Kaplan will speak at 1:30 p.m. ET.

Data on money supply for the latest week will be released at 4:30 p.m. ET.

J.C. Penney Company, Inc. Earnings: Another Disappointing Quarter

On Wednesday, department store giant Macy’s (NYSE:M) smashed analysts’ estimates, posting strong sales and earnings growth for the first quarter. This surprisingly good news raised investors’ hopes for the moribund department store sector.

However, J.C. Penney (NYSE:JCP) failed to match that admirable performance. In fact, it barely managed to achieve positive comparable-store sales growth last quarter. Meanwhile, gross margin eroded substantially, and the company posted an ugly loss. While management blamed the weak sales and earnings results on unfavorable weather trends, J.C. Penney’s mediocre first-quarter performance casts more doubt on its turnaround progress.

J.C. Penney’s quarter by the numbers

J.C. Penney posted a meager 0.2% increase in comparable-store sales during the first quarter, well below Macy’s 4.2% comp-sales growth (or even Macy’s 1.7% gain excluding the benefit from a shift in the timing of a major sale). Total revenue fell 4.1% year over year, due to the company closing nearly 140 stores in mid-2017.

Meanwhile, adjusted earnings per share swung to a $0.22 loss — $0.02 worse than the average analyst estimate — compared to adjusted EPS of $0.01 a year earlier (calculated based on new accounting rules implemented in 2018).

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$2.67 billion

$2.78 billion

(4.1%)

Gross margin

33.7%

36.1%

(2.4 ppt)

SG&A expense ratio

32%

34.7%

(2.7 ppt)

Adjusted EPS

($0.22)

$0.01

N/A

Free cash flow

($421 million)

($293 million)

N/A

Data source: J.C. Penney Q1 earnings report. SG&A = sales, general, and administrative expense; ppt = percentage points.

The most disappointing aspect of J.C. Penney’s first-quarter performance was its severe decline in gross margin. Management had warned investors back in March that gross margin was likely to decrease in Q1 before improving later in the year. However, the 2.4-percentage-point decline recorded last quarter was worse than expected. The company’s first-quarter cash burn also accelerated.

To be fair, J.C. Penney’s year-over-year earnings and cash flow declines in the first quarter were driven mostly by lower real estate gains. That said, the company did get a $30 million one-time benefit during the quarter related to selling the lease for one of its stores. Without that windfall, it would have posted an even bigger loss.

Bad weather takes a toll

J.C. Penney’s 0.2% Q1 comp-sales gain came in near the low end of its full-year guidance for 0% to 2% comp-sales growth. It was also well below management’s expectations. Back in early March, CFO Jeffrey Davis indicated on the Q4 earnings call that comp-sales growth was likely to be near the high end of the full-year guidance range in the first quarter.

The exterior of a JCPenney store

Sales missed expectations at J.C. Penney last quarter. Image source: J.C. Penney.

J.C. Penney blamed its subpar performance on unseasonably cold weather during the spring selling season, particularly in the first half of April. CEO Marvin Ellison noted that during February, March, and the last two weeks of April, comp-sales growth was much stronger than the full-quarter result.

This excuse does carry some weight, as much of the country experienced more severe winter weather than normal, particularly late in the season. Indeed, it was quite surprising that Macy’s didn’t see a noticeable negative impact from weather last quarter.

On the other hand, the subpar quarterly result indicates that management’s efforts to make J.C. Penney a less weather-sensitive business have had minimal impact thus far.

Accounting changes force a guidance cut

While revenue came in worse than expected last quarter, J.C. Penney reaffirmed its guidance for full-year comp sales to be up 0% to 2%. Management was encouraged by the company’s solid sales results outside of the worst period of unseasonable weather.

However, J.C. Penney reduced its full-year EPS guidance range by $0.12. It is now calling for EPS between a loss of $0.07 and a gain of $0.13. It attributed this change to the implementation of new accounting rules, rather than to any fundamental deterioration in its outlook.

The key question for investors is whether J.C. Penney can achieve this revised EPS forecast — and ideally, a result at the high end of the guidance range. After the company’s disappointing first quarter, there isn’t much margin for error. J.C. Penney simply can’t afford any further mishaps, including bad weather.

A Peek Into The Markets: US Stock Futures Down Ahead Of JC Penney Earnings

Pre-open movers

U.S. stock futures traded lower in early pre-market trade, ahead of earnings from J. C. Penney Company, Inc. (NYSE: JCP). Data on initial jobless claims for the latest week and the Philly Fed general conditions index for May will be released at 8:30 a.m. ET. The index of leading economic indicators for April is schedule for release at 10:00 a.m. ET. Minneapolis Federal Reserve President Neel Kashkari is set to speak at 10:45 a.m. ET, while Federal Reserve Bank of Dallas President Robert Kaplan will speak at 1:30 p.m. ET.

Futures for the Dow Jones Industrial Average fell 24 points to 24,716.00, while the Standard & Poor’s 500 index futures declined 4.75 points to 2,718.25. Futures for the Nasdaq 100 index declined 28.50 points to 6,910.25.

Oil prices traded higher as Brent crude futures rose 0.74 percent to trade at $79.87 per barrel, while US WTI crude futures gained 0.88 percent to trade at $72.12 a barrel. The Energy Information Administration’s weekly report on natural gas stocks in underground storage is schedule for release at 10:30 a.m. ET.

 

A Peek Into Global Markets

European markets were higher today, with the Spanish Ibex Index rising 0.30 percent, STOXX Europe 600 Index gaining 0.13 percent and German DAX 30 index gaining 0.26 percent. The UK's FTSE index was trading higher by 0.18 percent, while French CAC 40 Index rose 0.37 percent.

In Asian markets, Japan’s Nikkei Stock Average rose 0.53 percent, Hong Kong’s Hang Seng Index slipped 0.54 percent, China’s Shanghai Composite Index dropped 0.48 percent and India’s BSE Sensex slipped 0.67 percent.

Broker Recommendation

Analysts at Barclays upgraded The Coca-Cola Company (NYSE: KO) from Equal-Weight to Overweight.

Coca-Cola shares rose 0.91 percent to $41.93 in pre-market trading.

Breaking news

Walmart Inc (NYSE: WMT) reported better-than-expected results for its first quarter.
Childrens Place Inc (NASDAQ: PLCE) reported downbeat results for its first quarter.
Jack in the Box Inc. (NASDAQ: JACK) reported downbeat results for its second quarter. Comps were down 0.1 percent in the quarter. The company sees third-quarter comps coming in flat to up 1 percent.
Cisco Systems, Inc. (NASDAQ: CSCO) reported better-than-expected results for its third quarter. The company sees fourth quarter earnings in the range of 68 cents-70 cents with sales growth of 4-6 percent.

Market Appears Directionless Amid Geopolitical, Retail, Housing News

Before the U.S. market opened, Macy's Inc. (NYSE: M) reported earnings per share of 48 cents on revenue of $5.5 billion. M was expected to report adjusted EPS of $0.36, on revenue of $5.43 billion, according to third-party consensus estimates. The beat appears to offer more evidence that the U.S. consumer is doing OK. It comes after news yesterday that U.S. retail sales rose for two consecutive months.

In economic data this morning, April housing starts came in at 1.287 million units and building permits at 1.352 million units. Economists polled by Briefing.com were expecting April housing starts at 1.325 million units and building permits at 1.350 million units. 

In geopolitical news, North Korea cancelled talks with South Korea and threatened to nix a meeting with President Trump, saying it is displeased with U.S.-South Korea military exercises and U.S. demands that North Korea give up its nuclear program.

Although there was good news for the economy yesterday — in the form of the retail sales news and an Empire State manufacturing index that came in stronger than Wall Street analysts had expected — investors appeared to fret over inflation implications. 

The  three major U.S. indices lost ground Tuesday, with the Dow Jones Industrial Average ($DJI) snapping an 8-session winning streak. The S&P 500 (SPX) did manage to close over 2700, pointing to some strength at that technical level.

New High for 10-Year Treasury

The yield on the 10-year Treasury hit its highest point since 2011, weighing on stocks. Rising yields can make some stocks appear less attractive, particularly those that pay dividends or are loaded with debt. Treasuries are considered a “safer” investment by many, and rising yields raise the cost of borrowing. The 10-year Treasury yield rose 9 basis points to 3.08 percent after topping 3.09 percent on Tuesday. It pulled back a bit this morning to just below 3.07 percent.

The rising yields may have helped the financial sector somewhat on Tuesday as higher rates often can improve profit margins for banks. Financial stocks lost less ground than other sectors that were in the red. The action yesterday was a bit of a head scratcher, and it may be worth watching how the sector performs if rates keep rising. (The energy sector was the only gainer on Tuesday, but it rose only 0.01 percent.)

Earnings and Geopolitics

Retail earnings take center stage the remainder of the week, but aside from that it’s a little hard right now to determine what sort of catalyst is out there that could give the market back some of the “giddy-up” it had last week. Unless the retail earnings really surpass expectations in a big way, it might be difficult to figure out what the next instigator to the upside might be. Thursday looks like a big day, with Walmart Inc. (NYSE: WMT) and J C Penney Company Inc. (NYSE: JCP) scheduled to report before the open and Nordstrom, Inc. (NYSE: JWN) after the close. One question moving into these reports is whether the recent strong retail sales data might have helped the retail sector beyond M.

Trade fears also weighed on markets Tuesday after Reuters reported that the U.S. ambassador  to China said the two countries remain “very far apart” on settling trade issues. Worries over the trade spat have dogged markets over concerns about the ramifications for the economies of both countries.

chart_5_161_0.jpg
FIGURE 1: YIELDS HELP END DJIA STREAK. The Dow Jones Industrial Average ($DJI, purple line) saw its win streak end at eight yesterday as 10-year Treasury yields (candlestick) hopped to their highest level since 2011. Data source: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Inflation Watch Continues

Investors appear to be watching for clues as to whether the Fed will raise interest rates four times this year or stick with three. We’ll get some insight into inflation Thursday with the Philadelphia Fed index, which shows what manufacturers pay and the prices they receive. Economists polled by Briefing.com are expecting the index to drop to 20 from a prior reading of 23.2. Investors might want to consider watching what Fed funds futures do after the report is released. These financial instruments on Tuesday afternoon were pricing in a 95 percent chance of a rate hike in June, a 74.8 percent chance of another hike in September and a 42.9 percent chance for one in December.

Leading Indicators

A bit later in the day Thursday, we’ll get the Conference Board's Leading Economic Index for April. Economists polled by Briefing.com are expecting the index to rise by 0.4 percent compared with a 0.3 percent rise in March. Each month the board crunches a number of economic variables to calculate the index, so it can be a helpful snapshot for investors. Categories included in the index touch on manufacturing, unemployment claims, stock prices, building permits and consumer expectations, among other inputs.

Unemployment Reading

Considering job market tightness and what that might mean for inflation, it could be worth considering the weekly unemployment figures. On Thursday, we’ll see the latest numbers. A consensus of economists polled by Briefing.com is expecting initial claims for unemployment benefits to tick up to 216,000 from 211,000 the prior week. Although that would be an increase, continuing claims have been at historically low levels.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Market Appears Directionless Amid Geopolitical, Retail, Housing News

Before the U.S. market opened, Macy's Inc. (NYSE: M) reported earnings per share of 48 cents on revenue of $5.5 billion. M was expected to report adjusted EPS of $0.36, on revenue of $5.43 billion, according to third-party consensus estimates. The beat appears to offer more evidence that the U.S. consumer is doing OK. It comes after news yesterday that U.S. retail sales rose for two consecutive months.

In economic data this morning, April housing starts came in at 1.287 million units and building permits at 1.352 million units. Economists polled by Briefing.com were expecting April housing starts at 1.325 million units and building permits at 1.350 million units. 

In geopolitical news, North Korea cancelled talks with South Korea and threatened to nix a meeting with President Trump, saying it is displeased with U.S.-South Korea military exercises and U.S. demands that North Korea give up its nuclear program.

Although there was good news for the economy yesterday — in the form of the retail sales news and an Empire State manufacturing index that came in stronger than Wall Street analysts had expected — investors appeared to fret over inflation implications. 

The  three major U.S. indices lost ground Tuesday, with the Dow Jones Industrial Average ($DJI) snapping an 8-session winning streak. The S&P 500 (SPX) did manage to close over 2700, pointing to some strength at that technical level.

New High for 10-Year Treasury

The yield on the 10-year Treasury hit its highest point since 2011, weighing on stocks. Rising yields can make some stocks appear less attractive, particularly those that pay dividends or are loaded with debt. Treasuries are considered a “safer” investment by many, and rising yields raise the cost of borrowing. The 10-year Treasury yield rose 9 basis points to 3.08 percent after topping 3.09 percent on Tuesday. It pulled back a bit this morning to just below 3.07 percent.

The rising yields may have helped the financial sector somewhat on Tuesday as higher rates often can improve profit margins for banks. Financial stocks lost less ground than other sectors that were in the red. The action yesterday was a bit of a head scratcher, and it may be worth watching how the sector performs if rates keep rising. (The energy sector was the only gainer on Tuesday, but it rose only 0.01 percent.)

Earnings and Geopolitics

Retail earnings take center stage the remainder of the week, but aside from that it’s a little hard right now to determine what sort of catalyst is out there that could give the market back some of the “giddy-up” it had last week. Unless the retail earnings really surpass expectations in a big way, it might be difficult to figure out what the next instigator to the upside might be. Thursday looks like a big day, with Walmart Inc. (NYSE: WMT) and J C Penney Company Inc. (NYSE: JCP) scheduled to report before the open and Nordstrom, Inc. (NYSE: JWN) after the close. One question moving into these reports is whether the recent strong retail sales data might have helped the retail sector beyond M.

Trade fears also weighed on markets Tuesday after Reuters reported that the U.S. ambassador  to China said the two countries remain “very far apart” on settling trade issues. Worries over the trade spat have dogged markets over concerns about the ramifications for the economies of both countries.

chart_5_161_0.jpg
FIGURE 1: YIELDS HELP END DJIA STREAK. The Dow Jones Industrial Average ($DJI, purple line) saw its win streak end at eight yesterday as 10-year Treasury yields (candlestick) hopped to their highest level since 2011. Data source: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Inflation Watch Continues

Investors appear to be watching for clues as to whether the Fed will raise interest rates four times this year or stick with three. We’ll get some insight into inflation Thursday with the Philadelphia Fed index, which shows what manufacturers pay and the prices they receive. Economists polled by Briefing.com are expecting the index to drop to 20 from a prior reading of 23.2. Investors might want to consider watching what Fed funds futures do after the report is released. These financial instruments on Tuesday afternoon were pricing in a 95 percent chance of a rate hike in June, a 74.8 percent chance of another hike in September and a 42.9 percent chance for one in December.

Leading Indicators

A bit later in the day Thursday, we’ll get the Conference Board's Leading Economic Index for April. Economists polled by Briefing.com are expecting the index to rise by 0.4 percent compared with a 0.3 percent rise in March. Each month the board crunches a number of economic variables to calculate the index, so it can be a helpful snapshot for investors. Categories included in the index touch on manufacturing, unemployment claims, stock prices, building permits and consumer expectations, among other inputs.

Unemployment Reading

Considering job market tightness and what that might mean for inflation, it could be worth considering the weekly unemployment figures. On Thursday, we’ll see the latest numbers. A consensus of economists polled by Briefing.com is expecting initial claims for unemployment benefits to tick up to 216,000 from 211,000 the prior week. Although that would be an increase, continuing claims have been at historically low levels.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

J C Penney Company Inc Stock Still Isn’t a Great Buy – Yet

Over the past five years, we’ve watched beleaguered department store J C Penney Company Inc. (NYSE:JCP) make its way steadily downward. JCP stock has nearly halved its value since April 2017 which begs the question- how much lower can J C Penney stock go?

In many cases, a decline like this one leads to an excellent buying opportunity- especially when the company in question is working on a turnaround plan. That’s exactly the case with J C Penney stock.

JCP stock has had its fair share of headwinds over the past few years and the company is still working to dig itself out of a mountain of debt, however the past few quarterly results showed that the department store is starting to show signs of life.

Buying Time

Most importantly, JCP has been able to refinance some of it’s massive debt pile which will buy the firm a bit more time to orchestrate a successful turnaround. The company was burdened by over $300 million in debt that was set to come due in 2019 and 2020, but this year JCP issued $400 million worth of debt in order to pay off those loans.

The new $400 million will come due in 2025, giving the company a bit more time to get its business back on track, but the loan also comes with a steep 8.625% interest rate.

This refinancing was essential for JCP, but it doesn’t guarantee success. JC Penney will still have to pay its new, more expensive loan back when it comes due and in order to do that the firm will need to be on much more stable footing.

Stealing Market Share

JC Penney’s comps in the third and fourth quarter impressed investors, and rightly so- firm saw same-store sales rise 1.7% and 2.6% respectively. When you look at retailers in general, those figures don’t exactly blow the competition out of the water, but they’re enough to suggest stability and they’re certainly a huge step up for JCP stock.

A big reason for those improvements has been the impending death of Sears Holdings Corp. (NASDAQ:SHLD). In an effort to capitalize on Sears’ hardships, JCP stepped up its appliance offerings and that appears to be paying off. As Sears fades out of appliance sales, JCP is picking up some of that marketshare.

The same is true with JCP’s toy offerings. JC Penney made a push into selling children’s toys at the same time that Toys R Us closed its doors.

So is the Turnaround Happening?

There’s no simple answer to whether or not JCP has been successful so far in its turnaround efforts. On one hand, the company’s efforts to improve its store offerings and create a shopping experience that will draw in customers appears to be working- the improving comps speak to that. However, on the other hand the company is still struggling with ultra-low margins.

While the fourth quarter saw less promotional activity cutting into profits, online sales still weighed heavily on margins. On this front, JC Penney is stuck between a rock and a hard place. In order to grow its online presence, JC Penney needs to focus on online sales which are inevitably less profitable than in-store sales. However, on the other hand JCP really can’t afford to grow sales at all costs like some of its peers can.

Should I Buy JCP Stock?

As a speculative play, JCP stock could potentially be a money maker- however it’s important to realize that there’s a huge amount of risk because the firm’s future is far from certain. As my colleague Lawrence Meyers put it, “the way to play J C Penney stock is as a trade.” He recommends buying somewhere below $2.70 and selling in increments as the share price improves.

I agree with Meyers in that respect- if you’ve got the stomach for risk and you are willing to put some of your chips on the line, that kind of speculative trade is definitely worth considering.

However, for me the JCP story simply isn’t compelling enough to believe in. I’m not overly impressed by the company’s improving margins because I think stronger rivals like Home Depot Inc. (NYSE:HD) will eventually dominate the appliance market and toy sales doesn’t look like a particularly strong life-line. With that in mind, I’ll be watching JCP’s turnaround efforts from the sidelines.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities. 

Compare Brokers