Goldman Sachs (NYSE:GS) analyst Adrianne Shapira upgraded J.C. Penney (NYSE:JCP) from “Neutral” to “Buy,” with expectations that consumer spending will increase driving the decision.
Including with the assumption is the fact that J.C. Penny is a mid-priced department store, implying some consumers are moving out of the discount mode into more of a regular buying pattern.
This seems to be confirmed from the report from J.C. Penny today that same-store sales increased by 5.4 percent in March. Same-store sales refers to stores open for more than a year. This is probably the most important metric in the retail business, and is good news for the sector if it continues; although consumers still remain shaky, and anything could cause them in the current jittery state they’re in to pull back on spending.
Shapira wrote in a note about J.C. Penny, “While March trends underperformed peers, momentum is building, with traffic posting a second month of gains – a sharp reversal from the second half of 2009’s declines. Today’s consumer spending recovery is lifting all department store boats; as such, we expect J.C. Penney, 2009’s laggard, to see a healthy snap back in 2010.”
As mentioned by Shapira, the company still didn’t get the boost their competitors got, and even with the tax money in consumers hands, it shows their spending preferences were at other stores rather than J.C. Penny, although at least they did get a nice boost in increased sales.
Again, we need to wait until the next quarterly report concerning retail companies to see if this is the tax windfall anomaly or a real change in spending habits caused from increased confidence.
With little economic news to generate consumer confidence, it seems to me it’s more the windfall that has generated the extra sales, but again, we’ll have to wait three months to find out. I’m unconvinced that consumer spending is on the upswing other than for the reasons already stated.
Even so, Shapira believes differently, and has added the retailer to her “Conviction Buy” list.
