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J.C. Penney: Remodeling project

J.C. Penney: Remodeling project. Uranbileg Enkhtuvshin – Roy Ju Emily Kessler – Jaclyn Ivanisevic. Agenda. Recommendation Capital Budget Analysis Value Factors Analysis New Strategy Critique Conclusion. Recommendation. JCP overvalued with poor outlook

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J.C. Penney: Remodeling project

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  1. J.C. Penney: Remodeling project Uranbileg Enkhtuvshin – Roy Ju Emily Kessler – Jaclyn Ivanisevic

  2. Agenda • Recommendation • Capital Budget Analysis • Value Factors Analysis • New Strategy Critique • Conclusion

  3. Recommendation • JCP overvalued with poor outlook • Selling stock short, buying low cost call

  4. Capital Budgeting Analysis • Assumptions • Risk free rate is 30-year treasury bill rate • Project is solely financed by equity • Cost of Sales is constant at 61% • SG&A is 20% variable and 80% fixed • Depreciation is increasing at a constant rate • Interest Expense is held constant

  5. Capital Budgeting Analysis • Results • Beta = 1.29 • WACC = 8.13% • NPV = $914.88 when Sales is expected to decrease by -2.74% • NPV = 0 when Sales is expected to decrease by -3.61%

  6. Sensitivity Analysis

  7. Key Indicators

  8. Value Factors

  9. Strategy Analysis: Pricing Strategy Improvements • Lower prices by 40% • 2 Sales per month • Increase discount margin

  10. Strategy Analysis: Remodeling Strategy Improvements • “Stores within the store” • More upscale brands • Free services • Gradual remodeling across all stores • Product Focus • Affordable and practical brands • Focused customer group • Remodel one store at a time

  11. Strategy Analysis: Competitors Strategy Improvements • Attract new customer base • Appeal to needs of current customers

  12. Strategy Analysis: Competitors Nordstrom’s Remodeled JCP

  13. Strategy Analysis: Competitors

  14. Strategy Analysis: Competitors

  15. Conclusion • Capital-budgeting • NPV not favorable • Value Factors • Financial ratios reveal overvalued stock • Remodeling strategy analysis • Ineffective

  16. Investing Strategy • JCP stock overvalued with poor outlook • Sell stock short, buy cheap call (K>1.5S) • Monitor risks • Vs put option • Vs short call option • Vs straddle

  17. Thank You • Roy.Ju@drake.edu • Uranbileg.Enkhtuvshin@drake.edu • Jaclyn.Ivanisevic@drake.edu • Emily.Kessler@drake.edu

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