Canaccord Genuity on JC Penney (NYSE:JCP), Norfolk Southern (NYSE:NSC), and Wal-Mart (NYSE:WMT)

By Canaccord Genuity  SEP 21, 2012 1:20 PM

JC Penney and Norfolk Southern shares tumble while Wal-Mart rejects Amazon's Kindle.


The following are excerpts from Canaccord Genuity analysts' commentaries.

JC Penney (NYSE:JCP): Was It Something I Said?

JC Penney got pummeled after its Analyst Day during which Chief Executive Ron Johnson essentially wrote off the rest of the 2012, saying the H2/12 would be just as painful as the first half. The outlook marks a tough holiday season for the former Apple (NASDAQ:AAPL) executive, who is trying to liven up JC Penney's image and wean the company off of the relentless discounting that his predecessors had used to lure shoppers. Johnson, who took the top job last November, has changed the look and feel of JC Penney’s stores and advertising, and replaced regular sales and coupons with broadly lower prices. However, consumers have yet to respond. This lead to a sizeable $310 million loss on a 21% sales drop in the in H1/12.

While Johnson did share some encouraging signs about JC Penney’s strategy, investors focused more on his affirmation that that the turnaround would take time. "It has been a very hard year," he said. "We're planning the back half to be very similar to the first half."  Johnson warned that he expects continued challenges as the company works to wean its customers off coupons. Additionally, while back-to-school sales were strong, the last two weeks have been a lot tougher. On a positive note, Johnson said sales at new boutique shops (shops within the store that emphasize brand names) were running 20% higher than the rest of the store. However, these higher sales  weren't enough to boost JC Penney’s overall sales. A Deutsche Bank analyst commented that while JC Penney is taking steps in the right direction, he believes the road to recovery is still a few years off. Meanwhile, a JPMorgan analyst cautiously said, "Store evolution continues with initial shop productivity encouraging."

Norfolk Southern (NYSE:NSC): Chugga Chugga, Choo Choo!

Shares of Norfolk Southern were down sharply after the company lowered its earnings expectations for the coming quarter. For the upcoming Q3/12 period, the company now expects to earn $1.18 - $1.25 per share. This is down meaningfully from previous expectations of $1.63 for the quarter. Decreased coal and merchandise shipments, offset in part by growth in intermodal volumes, are together expected to reduce revenues by approximately $120 million compared with third quarter 2011. Fuel surcharge revenues are also anticipated to be approximately $80 million below the same period last year. Third-quarter 2011 fuel surcharge revenues included a favorable lag-effect of $52 million, whereas results for the current quarter are expected to be impacted by an unfavorable lag-effect in the range of $25-30 million. Shares of other railways, such as CSX (NYSE:CSX) and Canadian National Railway (TSE:CNR) also traded down in sympathy.

Wal-Mart (NYSE:WMT): Putting Out the Fire.

Wal-Mart will no longer sell Amazon’s (NASDAQ:AMZN) Kindle products, making the world’s largest retailer the second major chain to stop selling Amazon’s devices, according to a source familiar with the situation. “We have recently made the business decision to not carry Amazon tablets and eReaders beyond our existing inventory and purchase commitments,” Wal-Mart said in a memo sent to store managers on Wednesday. “This includes all Amazon Kindle models current and recently announced.”

Wal-Mart said the decision was consistent with its overall merchandising strategy. While Wal-Mart dwarfs other retailers in overall sales, it trails Amazon and others online and has been stepping up efforts to increase its presence there. Consumers who buy Kindle tablets such as the new Kindle Fire HD can shop on the devices for more than just digital books, pushing Amazon into further competition with stores. That has come to an end.

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