The Zacks Analyst Blog Highlights: J.C. Penney Company, Macy’s, Kohl’s, Brinker International and The Wendy’s

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Aug 15, 2011, 09:30 ET

CHICAGO, Aug. 15, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: J.C. Penney Company Inc. (NYSE: JCP), Macy's Inc. (NYSE: M) Kohl's Corporation (NYSE: KSS) Brinker International Inc. (NYSE: EAT) and The Wendy's Co. (NYSE: WEN).

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Here are highlights from Friday's Analyst Blog:

J.C. Penney Beats by a Penny

J.C. Penney Company Inc. (NYSE: JCP) recently delivered second-quarter 2011 earnings of 7 cents a share that came a penny ahead of the Zacks Consensus Estimate as well as the prior-year quarter's earnings.

Strong performance of women's apparel and accessories and fine jewelry boosted the quarterly results, with the Southwest region contributing the highest revenue.

Behind the Headline

The quarterly sales of $3,906 million fell short of the Zacks Consensus Estimate of $3,928 million, and inched down 0.8% from the prior-year quarter. Total sales were adversely affected by the discontinuation of the publishing of Big Book catalogs. Internet sales through jcp.com crept up 2.8% to $326 million in the quarter.

Comparable-store sales inched up 1.5% during the quarter compared with a 0.9% increase in the prior-year period. J. C. Penney's inclusion of 'Liz Claiborne', 'Arizona', 'St. John's Bay' and 'Modern Bride' brands to its portfolio helped to drive sales and improve traffic.

The in-store Sephora departments continue to outperform in attracting younger and more affluent customers. During the quarter, J.C. Penney opened 22 Sephora stores, bringing the total count to 276. The Sephora concept is expected to be a significant revenue driver.

The company's gross profit fell 3.5% to $1,497 million, whereas gross profit margin contracted 110 basis points to 38.3%, reflecting higher promotional spending. Management now expects third-quarter 2011 gross margin to be marginally down compared with the prior-year period.

Sales and Earnings Forecast

The Plano, Texas-based retailer, J.C. Penney, provided guidance for third-quarter 2011 comparable store sales growth in the range of 2% to 3%, while total sales is expected to increase 250 basis points less than comparable store sales.

Management now expects third-quarter 2011 earnings between 15 cents and 20 cents a share, including restructuring charges of about 5 cents.

The current Zacks Consensus Estimate for the third quarter is 26 cents a share, above the company's guidance range. Following, management's outlook, we could witness a correction in the Zacks Consensus Estimates in the coming days, with analysts tweaking their estimates in line with the company.

J.C. Penney's long-term growth target is to achieve earnings of $5.00 per share in 2014, on the heels of compelling private and national brands, redefined jcp.com platform, cost containment initiatives, closure of underperforming units and restructuring of supply chain.

J.C. Penney, which competes with Macy's Inc. (NYSE: M) and Kohl's Corporation (NYSE: KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.

Currently, we have a long-term Neutral rating on the stock. Moreover, J.C. Penney holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

Brinker Beats on Both Ends

Brinker International Inc. (NYSE: EAT) has recently reported fourth quarter 2011 adjusted earnings per share of 48 cents, surpassing the Zacks Consensus Estimate by a penny. Earnings were also above 44 cents reported in the prior-year quarter.

On a GAAP basis, the owner of Chili's Grill & Bar and Maggiano's Little Italy has reported fourth quarter earnings of 49 cents per share versus 42 cents posted in the year-ago quarter.

In fiscal 2011, adjusted and GAAP earnings in the quarter were 1.52 and 1.53, respectively, as against $1.15 and 1.01 in the prior fiscal year.

Total revenue dropped 3.4% year over year to $717.5 million due to a 7.5% decrease in capacity given an extra operating week in the fourth quarter of fiscal 2010. However, the quarter's revenue strode past the Zacks Consensus Estimate of $707 million. In fiscal 2011, total revenue declined 3.4% to $2.8 billion.

However, same-restaurant sales at company-owned restaurants increased 2.6% on the back of a respective 2.1% 5.7% growth at Chili's and Maggiano's.

Financial Position

At quarter end, the company had current assets of $221.4 million and shareholder equity of $438.9 million. During the fourth quarter, the company repurchased 2.5 million shares for approximately $62.9 million.

Outlook

Brinker reaffirmed its adjusted earnings guidance range of $1.80 to $1.95 for fiscal 2012. The company continues to expect full-year revenues and comparable-restaurant sales to increase 2–3% year over year.

Capital expenditure is estimated between $155 and $165 million for 2012.

Our Take

Brinker's earnings increased, but revenues declined. However, Brinker is repositioning its Chili's brand to offset the declining sales momentum and record more sustainable and stable growth. Additionally, the company is making efforts to expand its margins through disciplined cost management. Additionally, the company is boosting shareholder value through share repurchase activity as well as dividend payment.

Wendy's currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of the peers of Brinker, The Wendy's Co. (NYSE: WEN) posted second quarter 2011 adjusted earnings of 5 cents per share which matched our estimate.

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