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Others to Profit During J.C. Penney Turnaround: Analyst

A lot of retailers are going to profit as J.C. Penneycontinues its turnaround, Morgan Stanley analyst Michelle Clark told CNBC Thursday.

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Penney announced its new pricing strategy in January, as well as a plan to offer "stores within a store" and offer more exclusive goods from such brands as Martha Stewart, in whose company Penney bought a sizable stake.

CEO Ron Johnson told CNBC at that time the strategy is "the first key step in the transformation" of the retailer.

But in the short term, Clark said, other retailers across the board will be able to profit from Penney's transition.

"In the department store space, Macy’s will be a bigger beneficiary than Kohl's because they have a higher store overlap with J.C. Penney," Clark said. Macy’s is "also executing from a product standpoint" because "Kohl's

has not introduced enough new brands into its assortment."

In specialty retail, Gap's Old Navy is likely to pick up market share, she continued, while Target will benefit within the discount category. In the off-price sector TJX and Ross Stores will pick up "J.C. Penney's price-conscious consumer."

"We also think the off-price retailers will pick up some of J.C. Penney's vendors as it looks to narrow down its vendor base," Clark said.

Expectations for Penney are high. Some analysts, including Piper Jaffrey's Jeff Klinefelter, believe Penney earnings won't see any "meaningful" bounce from the strategy until 2013.

At the same time, the bulls will point to Ron Johnson and J.C. Penney's management team as driving same-store sales growth this year, according to Morgan Stanley's Clark. She thinks the first-quarter earnings, due out in May, could disappoint.

"We think sales are underperforming expectations there," she said of Penney's. Macy's, by contrast, is gaining market share with its "exclusive brands and localization initiatives."

"It's one of the cheapest names" in the retail sector and "it's the one we would put money behind at current levels," she said.

Clark does not own shares of the companies but Morgan Stanley has received compensation for banking services at one or more of them.

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