JCP's Quarter In Charts: Retailer Generates Least Amount Of Cash Flow In Holiday Quarter In Recent History

Tyler Durden's picture

Moments ago JCP did what it does best: released results that missed expectations, with Revenues in the traditionally strongest, holiday (Q4) quarter of $3.78 billion below the $3.86 billion expected, and comp sales up 2.0% below the 2.1% expected. Additionally, the company's profit margin was 28.4%, the second lowest in recent history, and only better than the 23.8% posted a year ago when the company was openly imploding. But the red flag was Free Cash Flow, driven entirely by inventory liquidation, was $246 million: the lowest such amount for the holiday quarter also in history. Whether or not this miss was not quite as bad as a worst case miss could be, whatever that means, is unclear but for now the traditional post-earning squeeze has pushed the stock higher. How long this particular squeeze persists is unclear, but likely depends on the longer-term viability of the company, and recent trends. To determine what these are, here are some charts showing how the company has performed in recent years.

First, here is JCP's all important Free Cash Flow. While in Q4 JCP generated a little over $200 million in cash, it is the next three quarters that matter, as this is when the company burned the bulk of its cash. As a reference point: last year, in the Q1-Q3 period, JCP burned $3 billion.


JCP better not intend on burning $3 billion this year too. Why? Because as it reported, it expects its liquidity "to be in excess of $2 billion at year-end." Really? How? Because that inventory build and $2-3 billion cash need will hardly grow on trees.

Next, we look at revenue: while this missed as we noted above, it was the only bright spot in the earnings report - the good news: it wasn't an all out crash, even if like FCF, it was the lowest revenue for the holiday quarter in recent history.


Next, and perhaps most troubling, was the reason for the company's subar free cash flow creation: in a nutshell, the company did not sell nearly enough inventory in the quarter. As the following chart shows, JCP liquidated, and thus generated "only" $812 million in inventory cash in the quarter: in prior years this number was always greater than $1 billion. This likely means even greater mark downs in coming quarters as JCP scrambles to dump even staler products.


Last and almost least, was JCP's profit margin in the quarter. Surprisingly, it was a substantial 28.4%. Why? See the chart above - the company opted to not liquidate stale inventory and pull  margins down even lower. This was "good" for the profit margin, but bad for cash flow creation, and even worse for future quarter margins.

Finally, the cherry on top in the newsflow had nothing to do with JCP per se, but with the SEC: as readers will recall, it was back on September 26 when the company announced on CNBC it would not do a follow on offering only to announce, a few hours later, that it was doing precisely such a follow on equity offering. We were disgusted and appalled. We are more disgusted and appalled by the SEC which has announced the following:


And that, in a nutshell, is all you need to know about our criminal markets.

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NOTaREALmerican's picture

They should start selling Tesla's....

NotApplicable's picture

Free cash flow is soooooooo 20th Century.

Gr8taters's picture

All the shorts are crapping their pants so you must be short.

The reality is JCP will not go bankrupt, too harmful to the mall operators and Goldman does not want to be a landlord. I can name a dozen reasons why JCP will survive.

Long and strong at $5.33.


CheapBastard's picture
Consumers Hit With Surprise Tax in Obamacare Premium


Kiss the Middle Class Consumer bye bye. They are Kaput.

Gr8taters's picture

That's a no-braiiner, duh. We know the middle class consumer is hurting but that doesn't mean they've stopped shopping.


jcaz's picture

LOL-  you clearly have an edge on no-brainers, true-

Why not stop back after you've learned to read a balance sheet, and check out how JCP has collaterlized any real value of the stock?    It's not conjecture, it's a matter of public record.

Only smart move here for JCP is reorg- cash flow is king, and JCP themselves just told you they don't have enough for 2014, barring another dilution- $2B coming in don't cover $3B going out in this dimension, Willie.....  It's RIGHT THERE IN FRONT OF YOU!!!!!

But hey, you keep thinking that selling enough Dockers will pull them out of this mess-  your 12 shares of JCP may hit $7 tomorrow!   And then management will announce another secondary out of the blue (like they did last time) and your $5.33 is diluted to $3-  well played!

JCP has already failed- there's nothing left backing the common- ZERO.  PUNTO.  Like GM,  they'll just reorg, walk away from the dupes still holding the common, issue out JCP (b),  and maybe they throw you some warrants in the new stock if they want to be nice to you- but probably not.

MarkD's picture

Middle class consumer has been kaput for quite some time now. They have been using HELOC's to pretend.

Oldwood's picture

Their is only one economy, the credit economy. If you can't borrow money to buy it, it ain't selling. Consumers are still unsure, given recent history, whether in a case of default, they will be able to walk away clean like the bankers. Its one thing to borrow money you know you will never have to pay back (like our government) but it is quite something else to think they may come looking for you to get the cash.

jcaz's picture

Yep- next thing, they'll be talking profitability again- the fools..... 

Can only run a company in this market that has no chance of ever making a profit-  JCP is almost there......

b_thunder's picture

JCP up "only" 14% in AH trading

aVileRat's picture

Between Target saying they will "only" get back to 2011 EPS in 3 years (unless they find the credit data was breached on multiple times in the last 5 years) and JCP: I only am going bankrupt slower, retail is such a screwed up world. Guess the "weather" meme can now be put back on the shelf beside Hurricane trades.



NoDebt's picture

"retail is such a screwed up world."

You should invest in airline stocks.  

NoDebt's picture

So, Tyler, who dies first?  JCP or Radio Shack?  I have a feeling those roaches will outlive us all.

Oldwood's picture

But what about BTFD? Down 75% sounds like a great buying opportunity!

jonjon831983's picture

It's all about what price you buy at... and if you're willing to gamble they'll be able to pull off some fancy creative accounting.

kchrisc's picture

Like a tree that won't topple over despite having its trunk cut clear through--borrowed time.

Can't wait to see what's up at Radio Shack.


JMT's picture

Come on the stuff they sell is (putting it nicely) crap.. Macys in NYC is packed and they are doing much better... Other stores like Bloomingdales & Bergdoff Goodman are packed as well... 


Make_Mine_A_Double's picture

The young gals in my office got their panties in a wad about the new Zara store in downtown Seattle (primo RE for primo rents). This is cheap chic shit as I understand it, but is apparently hip and cool with the ladies.

As a mid market dept store if you loose this demo your fucked.

New JCCCP Slogan - We lose money so you don't have to!