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I have to confess. As a J.C. Penney Company (NYSE: JCP ) bear, when I saw the headlines saying that same-store sales grew 10.1% for November, my jaw literally dropped and I was stunned. I must have looked like a ghoul for a few minutes. I didn't see this coming. As we wait for more data to come out from J.C. Penney and its competitors such as Macy's (NYSE: M ) and Kohl's Corp (NYSE: KSS ) , it appears that even J.C. Penney's management was surprised by the positive results.
J.C. Penney holiday update
On Dec. 3, J.C. Penney issued a press release regarding November sales. The company reported that same-store sales for the month of November were up over 10.1%. What's particularly remarkable about this figure was that the month of November this year ended a single day after Black Friday. Last year there were seven more holiday shopping days after Black Friday compared to just one this year.
While it's true that many people did their holiday shopping earlier than Black Friday this year, there's no question that holiday shopping days hold a significant advantage over non-holiday days. In fact, CEO Mike Ullman singled out the Thanksgiving holiday weekend in particular. He also credited the success to the company's "great merchandise and compelling promotion." He noted part of the success was due to traffic. This is key.
The importance of traffic
Compare this to October. J.C. Penney had reported a same-store sales increase in October of 0.9%. Traffic was lower, but sales went up a hair because the company had two quarters of leftover, unsold inventory that it discounted on clearance. Some of it was discounted so severely that it was sold under cost. It seemed like nothing to get excited about.
A November to remember?
J.C. Penney's earnings report didn't give investors much to chew on for November. On Nov. 20, Ullman stated that management was "proud" of October but only "encouraged" about November.
In the conference call, Ullman stated that November sales for the first three weeks were "consistent with the improvement momentum we experienced in October." This suggested and implied something in the neighborhood of a 0.9% same-store sales gain again. He stated that they expect to see "positive comps" for the fourth quarter which again implies barely positive growth. http://seekingalpha.com/article/1852131-j-c-penney-companys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single
The result of 10.1% was more than barely positive. It was a home run. Perhaps everything J.C. Penney's has been working on is starting to finally bear fruit. In the call, he did mention that traffic had finally turned positive in November. That may have led to a huge surge in late November. During the Q&A Ullman had said "Our customer service scores, again, were the highest we've seen."
Either management was holding back or they themselves didn't see this coming. When pressed in the Q&A, Ullman consistently dodged questions about November for the most part. For example, Ullman said:
It's going to vary by week and by promotion. Also, the calendar is quite different than a year ago. But we're confident that we're on the right track and the customer is responding well.
That sounds like an answer you give when you expect a 1% same-store sales increase or worse – not a 10.1% increase.
Is it J.C. Penney specifically or the environment?
The next question to ask is if it's J.C. Penney that's doing something right or are similar stores seeing the same thing? At the time of this writing, Macy's and Kohl's haven't yet given official updates for their full-month November sales.
Neither the Macy's earnings report nor the conference call gave many hints into November specifically. Terry J. Lundgren did mention though that spikes in cold weather tend to cause a spike in traffic and sales as people buy coats and sweaters from the stores. There was a cold front that hit most of the nation in late November so it's probable that this contributed to J.C. Penney, Macy's, and Kohl's sales.
Macy's expects the momentum from the third quarter to carry over into the fourth quarter. Third quarter same-store sales rose by 3.5% so this implies that the two weeks before the conference call saw similar sales growth at least but not necessarily sales growth on the 10.1% level of J.C. Penney.
When Kohl's issued its earnings report, the company simply stated it intended to gain market share this holiday season. This implies that Kohl's already saw strong sales for the first two weeks in November. In the conference call, Kohl's reported that, like Macy's, seasonal weather patterns have helped fuel sales gains in November. During the Q&A, CFO Wesley S. McDonald stated, "The strength we saw in October has continued into November thus far." h
Foolish final thoughts
It appears there's an industry tailwind on J.C. Penney's side, but the initial data so far suggests J.C. Penney may be sailing successfully on its own. While one month doesn't necessarily make a trend, Foolish investors may want to keep J.C. Penney on watch. If management truly is successful at turning the company around, it could potentially become a lucrative long-term investment.
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