Best Buy, J.C. Penney, and GameStop Have a Lot to Prove This Week

The start of the holiday shopping season is still 10 days away, but this week is going to be huge for Best Buy (NYSE: BBY  ) , J.C. Penney (NYSE: JCP  ) , and GameStop (NYSE: GME  ) investors. All three chains are reporting quarterly results this week, setting the stage for the critical seasonally potent holiday quarter that is now under way.

All three stocks have been rallying lately. GameStop has more than doubled this year and Best Buy shares have nearly quadrupled in 2013. J.C. Penney investors haven't been as fortunate this year -- the struggling department-store chain has surrendered more than half of its value in 2013 -- but the stock has soared 45% since bottoming out last month.

All three chains are heading into their reports with momentum on their side, but are the rallying shares making promises that the fundamentals can't keep?

Best Buy
The leading consumer-electronics retailer reports tomorrow. Given that the stock has nearly quadrupled this year and the accolades that CEO Hubert Joly has gotten in turning the superstore chain around, one would think that Best Buy's on fire. 

Analysts see profitability improving dramatically to $0.11 a share, and after it bested Wall Street's profit targets in each of the past three quarters it's hard to argue against that call. But those same pros see revenue sliding 13%. International weakness and store closures may be weighing on top-line growth, but Best Buy will need to break free from reporting flat to negative comps before the market believes that Best Buy has truly conquered the showrooming trend that's been eating away at store-level sales.

J.C. Penney
The department store that seemed left for dead last month has found new signs of life in recent weeks. Lifeline-extending financing helped, but so did a 0.9% increase in comps for the month of October.

The uptick in store-level sales is huge. It broke a streak of 21 consecutive months of negative year-over-year comps. But J.C. Penney also pointed out that it was an increase in promotional activity that triggered the boost in sales. In other words, investors will want to see if the struggling chain had to sacrifice margins for the sake of traffic and sales when it reports on Wednesday. Analysts see J.C. Penney's loss nearly doubling this time around on a 4% decline in sales.

GameStop
Of the three rallying retailers reporting, GameStop is one for which the fundamentals do appear to be improving. Analysts see revenue climbing 12% with earnings growing even faster when it steps up on Thursday.

The trends are also favorable. It's not just about the new PS4 and Xbox One hitting the market this month. Industry tracker NPD Group has reported three consecutive months of rising sales for physical software media. The industry had been languishing for years, and there was always the fear that gamers would hold back on software until the new consoles hit the market in November. That didn't happen.

The shift to digital distribution remains a long-term concern for GameStop as console makers and software publishers deal directly with console owners, but GameStop's been beefing up its own online initiatives to have some skin in that game.

All three reports will move the stocks. None of them can afford to miss.

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