$JCP – I have a bad feeling about this (earnings report)

Here at Sentieo we’ve been tracking JCP and their Instagram account and see a storm brewing. We will walk through 3 Sentieo products that you’ll wish you knew about sooner, and see how we are able to tie together Mosaic’s Instagram data, Document Search on Broker Research, and Realtime Google tracking to get ahead of the Street’s concerns. Sentieo is a new financial platform that supercharges your research process & returns by combining deep document search, tracking of new web and social datasets and an integrated research notebook into a seamless web + mobile experience.

What is Mosaic?

The idea of Mosaic Theory is simple:

  1. Look at publicly available data harder and closer than everyone else
  2. ???
  3. Profit!

The truth is, ??? is not so easy. Data is expensive and yet everyone wants to sell it to you, what do you use? Data is messy and unreliable and constantly changing, who do you hire to help you? And once you have it, how do you tie it together and not go crazy?

The way Sentieo helps with ??? is by providing a multifaceted platform that interlinks to serve up pieces that are, together, worth more than the sum of their parts. Let’s walk through how we found, then investigated, a recent case study that is only just starting to get traction on Wall Street, hopping between the various Sentieo products.

Plotter

We start our journey by loading up our proprietary Instagram data (available through the Mosaic product) on Plotter for three department stores reporting next week: $M, $JWN, and $JCP.

Looking at nonfinancial data is only meaningful in two ways. One, you can look at it vs peers to see how it is doing relative to peers. Two, you can look at it vs financial data (anything from same store sales to stock price) to see how it correlates. On legacy financial terminals, you cannot do either, and resort to ill-maintained spreadsheets. This is a problem.

Fortunately, we have Plotter.

jcpinsta

Just toying with the various data available from Instagram, we come across an interesting correlation between Instagram tags and stock price. We like digging into comments and tags because it shows a higher level of engagement than a passive ‘like’ – it is generally a good thing when someone wants to talk about your brand so much that they tagged you in their own post or commented on your post. Often, these someones are influencers, and can generate the kind of organic growth that every marketer dreams about. “Word of mouth” is now “word off thumb”, and we can measure it.

But wait – doesn’t JCP’s Instagram data (orange line) show the exact opposite of correlation? In end 2015 it was averaging 3.25k tags/day, but its stock (dotted blue) was languishing on a $6 handle. We now know that the stock was being overly punished for a compressing peer multiple (JWN, M) compounded by an 8x leveraged capital structure against a very uncertain retail and credit environment in 2h15. After recession fears peaked in Jan 2016, JCP’s preannouncement and subsequent guidance showed fears were overblown and the stock quickly recovered.

Nothing goes up forever, and Marvin Ellison’s feature on Fortune’s unambitious World’s 50 Greatest Leaders Issue in March 2016 marked the peak in the stock. Meanwhile, we were already tracking a decline in Instagram traction, and it continued to freefall down to 2k tags/day (JWN’s meteoric rise is worth a separate post in itself).

What was going on? Why was JCP stalling just when everyone had fallen in love with it? (or blew up hating it) Did JCP’s 2h15 private label push simply pull forward sales/customer interest and we are now seeing the post-promotional lull?

Here are 3 words that aren’t said enough: We don’t know.

DocSearch

But we can try to find out. We flip over to the Document Search tool and load up JCP, where we have hundreds of transcripts, reports, and filings (growing by the day). Our first guess is “sales” – nope, everything looks good up til their most recent comments in February. “Step back”? Nothing. “Promotions”? No.

“Marketing”? Bingo.

We had to blur the results but we finally found the explanation in research notes. Broker Research is a valuable add-on to Document Search because their channel checks and qualitative risk assessments, while not always right, help us rapidly understand consensus drivers. Multiple brokers are calling out near-term concerns – In the past two months, JCP has apparently pulled back on traffic-driving marketing events in order to promote its private-brand “Buy One Get One for 1¢” promotion, otherwise known as Penney Days.

JCP’s private label (both cards and merchandise) story so far has been received as none other than positive, but we have seen the dangers of cutting back on overall traffic initiatives. Longtime followers of JCP will recall the missteps during the Ron Johnson era and the absolute disaster that ensued. Could they have overstepped this quarter and focused too much on private brand to the detriment of its other ~40% of merchandise? Is the Buy One Get One promotion even working?

Realtime Search

Over to RTS*, which allows freeform exploration of relevant search terms (easily exportable to Plotter, your Sentieo Notebook, Microsoft Excel, etc.).

jcpgoogl

We cross-checked with our Twitter search and found the same lackluster spike with no followthrough. You will recall Instagram organic tagging didn’t even see a spike.

So the BOGO drove a nice pop in search traffic in March, but without significant organic customer excitement about the items actually on sale, interest has since dropped back down again to typical levels. If the company did actually step back on other key traffic driving initiatives to bet on this for spring, this would be a fairly disappointing result.

Conclusion

JCP reports before market open on May 13th. We want to be clear; we aren’t long-term bearish JCP. Marvin Ellison and his team of Home Depot alums understand the JCP customer and are turning around a massive ship, and we must distinguish between a tactical misstep and a strategic blunder. We haven’t even answered our own questions definitively – we end this with more questions than when we began.

But, we think, we end with better questions than before, that we can go back to follow up on with key channels, obtain more data, plot them alongside our key facts, and iterate until we triangulate on a consistent story for the earnings setup.  We think this process of jumping between interconnected tools for research and idea generation is the key value-add of Mosaic theory, and Sentieo is enables that seamlessly on one platform.

To see how Sentieo can help with your earnings prep, simply go to Sentieo.com and sign up for a free trial. If you would like to continually receive content related to topics of interest in the markets, don’t forget to subscribe to the Sentieo Blog so that we can notify you of new posts by e-mail. 

*NB: The RTS product will be revamped in the coming weeks for extra functionality; above screenshots are based on Sentieo’s May 1 public release.

New call-to-action