J.C. Penney Isn't Back From the Dead Just Yet

October appears to have provided more treats than tricks to J.C. Penney (NYSE: JCP  ) investors. Shares of the once-fading department store operator opened 4% higher after it posted its first positive month of comps in nearly two years. The stock has soared nearly 30% since bottoming out just two weeks ago.

J.C. Penney's update this morning is good news on the surface. Same-store sales rose 0.9% in October, and this is the first year-over-year uptick since the end of 2011. But let's bring a little healthy skepticism to this Penney party. 

For starters, let's point out that this does not mean that the typical store is selling more than it did last October. J.C. Penney is one of the disappointingly growing number of retailers that tack on their online sales to comps. Since JCP.com sales rose nearly 38%, that would be enough to turn negative store-level sales positive if online sales make up at least 3% of the chain's total sales. We don't have that figure, and we may still not have it when the retailer reports in two weeks.

J.C. Penney concedes that store traffic is softer than it was a year ago, despite what it calls a "favorable customer response to promotional events and improved inventory levels" through October. It does say that the average customer is converting better and spending more -- two great things to say in any scenario -- but until we get the actual numbers it's hard to say that sales at the store level have actually turned around. 

Investors may also want to be asking about how much these "promotional events" will sting the bottom line. We'll find out more on that in two weeks when J.C. Penney walks us down what could be a pretty ugly income statement. What good is increasing sales if it comes at the expense of contracting margins? Analysts see the struggling retailer losing nearly twice as much money as it did during the same quarter a year earlier. 

J.C. Penney is still patting itself on the back.

"We are proud of our October sales improvement, which we achieved despite the federal government shutdown and a challenging consumer environment," CEO Mike Ullman is quoted as saying in this morning's update. 

Really? You are proud of not keeping up with inflation last month? You are proud that a spike in online sales -- stemming largely from the active promotion of big-ticket yet potentially low-margin home furnishings -- is possibly misleading investors into thinking that store-level sales have turned positive? You're going to play up the federal government shutdown and the "challenging consumer environment" that haven't stung the retailers that get today's shopper?

We'll see in two weeks how proud you really should be.

Put a real retail winner in your shopping bag this season
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2717260, ~/Articles/ArticleHandler.aspx, 4/17/2014 5:22:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement