Why J.C. Penney Shares Moved Higher

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of J.C. Penney (NYSE: JCP  ) bounced back today, gaining as much as 10% after CEO Myron Ullman reaffirmed his positive same-store outlook for the third quarter.

So what: The struggling retailer has been a comedy of errors over the last 18 months, and rumors have spread recently about a potential liquidity crisis, which has further suppressed the share price. After seeing sales drop about 25% last year, the news that comps are heading upward is certainly welcome for investors. Notably, this was the third time in five weeks that Ullman made such a statement, a signal of J.C. Penney's desperate state.

Now what: While positive same-store sales are certainly a step in the right direction, the department store chain is still racking up huge losses. Analysts expect the company to finish this year with a loss of more than $6 per share, and predict a shortfall of $1.75 per share for the current quarter. J.C. Penney also has $5 billion in debt on its balance sheet, which will only become harder to service. Bankruptcy is a very real possibility at this point. Ullman, who was reinstated as CEO after the company imploded under former Apple exec Ron Johnson, is doing his best to right the ship, but the company was not exactly stellar under his leadership before. The stock may look better than it did yesterday, but there are still too many potential pitfalls for it to be safe.

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