JC Penney (NYSE:JCP) will release its Q2 2019 earnings results on August 15, and investors are looking forward to the results. In the past few weeks, JCP stock has not been doing well, and it dropped below the $1 mark as a result of tariff uncertainties and reports that the company is seeking options for the restructuring of its debt.
Gross Margin has Been Declining
The company’s declining sales have put JC Penney in the spotlight, and gross margin decline has been the main cause of the company’s weakening profits in the past few years. For instance, in fiscal years 2015 and 2016, the company’s gross margin averaged around 36% and effectively dropped to 34.6% and 23.5% in fiscal years 2017 and 2018, respectively.
Increase in completion, and the cost of meeting e-commerce orders has contributed greatly to the pressure experienced on gross margin. The company has been attempting to boost sales of the lower-margin appliances that have failed to pick up as the company continues to experience frequent inventory gluts.
At the time of writing, JCP stock is trading higher by 5.60% at $0.62.
In Q1 2019, JC Penney saw its gross margins drop another 0.5%. The company indicated that clearance sales related to its decision to quit the appliances business and selling of furniture in its outlets affected gross margin in the quarter. The total inventory of the company is down 16% and with the appliance clearance done with, the company expected to have started improving its gross margins last quarter.
10% Tariffs Led to Plunge in JCP Stock
The recent plunge in JCP stock was also a result of the recent trade tariffs that Donald Trump has imposed on Chinese imports. The additional 10% tariffs on $300 billion of imports targets items such as accessories, apparel, as well as home appliances.
However, the effect will not be as much as it has been amplified, as the CEO of the company, Jill Soltau, has indicated that the department store does not solely depend on goods sourced from China. JC Penney is focusing on reducing its exposure to goods emanating from China.
JCP stock has fallen over 50% since the beginning of this year.
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