Dear J.C. Penney: What Else Did You Expect?

Work with us, J.C. Penney (NYSE: JCP  ) . If you want the Street on board and backing your turnaround plan along with a show of support from common investors, you need to communicate what's going on and what you have planned in a more open and transparent manner. Your stock's crash came as little surprise after your latest update. After all, it had some holes in it so wide you could drive a truck through them.

The update
On Feb. 4, J.C. Penney released another financial update which stated that its turnaround plan is on track. Same-store sales hopped up 3.1% for November and December and 2% for the fourth quarter. This was the first quarterly same-store sales gain in two and a half years, and jcp.com sales rocketed 26.2%. Hurray! But not so fast.

CEO Mike Ullman mentioned that there were "significant headwinds facing all retailers this season" and blamed this in part on bad weather. For 2014, he mentioned that the company is "encouraged" and remains "steadfast." Not a peep about how January is going. Although it's disappointing to not have that information, it's not one of the holes in the release.

Hole No. 1 -- glossing over December
I'm all about J.C. Penney returning from the dead, but a 3.1% gain for November and December ain't gonna cut it. Same-stores sales were already up 10.1% for November, which means December must have been a disaster in comparison for the average of the two months to fall down to 3.1%. I'm not sure a further drop in sales during the most important month of the entire year evidences any sort of turnaround taking place.

Hole No. 2 -- the easy comps
Last year's fourth quarter was something really awful. Same-store sales nosedived 31.7%, and even jcp.com saw a 34.4% sales plunge. If the company can't even improve upon those horrible numbers, as it seems it didn't for December, it's hard to be impressed. Even sales at jcp.com, while up over last year's seemingly easy-to-beat sales, were still well short of the $480 million from two years ago, still down 17%. Aren't people shopping online more often than they were two years ago?

Hole No. 3 -- the-everybody-else-is-doing-bad-too argument
As an easy counter-example, look at what may very well be J.C. Penney's most common comparison: Macy's (NYSE: M  ) . While Macy's isn't scheduled to announce its earnings until Feb. 24, the company has already pre-announced some of its results for the holiday quarter. Macy's reported a 4.3% sales rise in the quarter and a 3.6% sales rise for November and December, and stated that the "holiday season was successful."

Hole No. 4 -- why the Jan. 8 press release?
On Jan. 8, in what might have been the world's shortest press release, J.C. Penney said it was pleased with its holiday performance. Back on Dec. 3, the same company stated, "We are all working to maintain our momentum through the Holiday season." Since it's clear that December saw more negative same-store sales, and December makes up the bulk of the holiday season, clearly there was no "maintained momentum." How come J.C. Penney characterized the holiday performance as something it was "pleased" with? Clearly J.C. Penney missed the mark.

Hole No. 5 -- the weather
Soon after I sung the praises of how cold weather actually benefits J.C. Penney, the company used the "harsh" weather as one of its excuses. On the last conference call, J.C. Penney actually credited the severe cold as the cause of the sales spike in November. Macy's, likewise, concurred that cold weather tends to bring in more traffic and sales as people come in to buy coats, sweaters, and other items. Now there's an unexplained shift in sentiment as to what the harsh cold does for sales.

Foolish final thoughts
What more is there to say at this time? The so-called turnaround seems hollow for now, and with no follow-up on how January went Fools should probably wait on the sidelines. It's always tempting to try to time a turnaround that looks "cheap" as J.C. Penney continues to sink lower and lower, but just remember that if J.C. Penney eventually goes under the loss of your investment would still be 100% no matter how "cheap" you buy in. It's a fascinating story that I will continue to monitor with each press release and conference call, and I recommend that each Fool does the same.

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Read/Post Comments (16) | Recommend This Article (4)

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.

  • Report this Comment On February 11, 2014, at 3:31 AM, elgato wrote:

    Hole No 6 - No matter what JCP does it will always come short of expectations of the so called "motley fool analysts" biased bashing.

  • Report this Comment On February 11, 2014, at 8:12 AM, abeatle32 wrote:

    more Motley Tool bashing !!

    Nickey Friedman who wrote this trash article prob has never run anything but her mouth ...

  • Report this Comment On February 11, 2014, at 8:39 AM, Roddy6667 wrote:

    All this talk about sales. What about profit? They are still bleeding BILLIONS of dollars in cash.

  • Report this Comment On February 11, 2014, at 8:43 AM, Roddy6667 wrote:

    They lose money on every item, but they will make up for it on volume.

    Sounds like a plan, Ullman.

  • Report this Comment On February 11, 2014, at 9:11 AM, clanza875 wrote:

    It looks like you are unaware that January is part of the 4th quarter. Their fiscal year ends on the Saturday closest to January 31st. So this year the fiscal year ends on 2/1. The 2% SSS increase includes January!

    This is on the first page of text within the annual report. You may want to read it before writing articles.

  • Report this Comment On February 11, 2014, at 10:04 AM, Stevec7 wrote:

    What I would like to see is the writer of this article go into a JCP store in your area and tell us if there are long lines or no lines at all. I have found the new stores quite busy and a great use of JCP interior real estate (floor space). Its now like a mall within a mall. Its a great plan and I am bullish on JCP. As for the Fools opinion, I have certainly noticed their opinion is a look in the rear view mirror, which is a common view of the 28 year old investor, not lacking brains at all, rather lacking experience.

  • Report this Comment On February 11, 2014, at 10:21 AM, ffbj wrote:

    I think it's true that it is a speculative play. When you buy JCP at these levels you are speculating that it will go up. To me speculation implies lack of hard data in the sense that you are not basing your decision on numbers but rather on the idea that things will get better. Since the stock hit $5 it has only gone up, almost at $6 today so the statement that it just keeps going lower makes little sense.

    A speculative bargain at $6.

  • Report this Comment On February 11, 2014, at 10:31 AM, MFslanderingJCP wrote:

    More bashing JCP from the Fools lap dogs.

  • Report this Comment On February 11, 2014, at 1:07 PM, jlipp23 wrote:

    As an analyst you should know that this year there was a week less selling time before Christmas in the December period. Therefore December results for retailers was depressed by the calender not by any

    missteps on their part.

    Before you give obvious uneducated opinion and if you hope to be credible one day -- DO THE RESEARCH,.

  • Report this Comment On February 11, 2014, at 2:11 PM, Roddy6667 wrote:

    I sold my JCP stock when it sank to $82. Does that put things in perspective?

  • Report this Comment On February 11, 2014, at 11:07 PM, nickeyfriedman wrote:

    @ clanza875,

    That only means January was an even worse disaster than December. Thanks for pointing that out.

    Over 10% November.

    3.3% average for Nov-Dec (means terrible December)

    2% average for Nov-Dec-Jan (means even more terrible January)

  • Report this Comment On February 11, 2014, at 11:09 PM, nickeyfriedman wrote:

    @Stevec7,

    I have no doubt that your local JCP was busy at the time and location that you went. However, unless you compared that time and location to the time and location of last year and had hard data not just on traffic but average total guest purchase, it's a nearly useless observation.

  • Report this Comment On February 11, 2014, at 11:10 PM, nickeyfriedman wrote:

    @ jlipp23,

    JCP was worse off in December than its competitors. When you further consider the easy comparison it had compared to last year's terrible numbers, it's a shame JCP couldn't even reach that low bar.

  • Report this Comment On February 12, 2014, at 6:49 AM, clanza875 wrote:

    I could actually go through the last annual report and subsequent quarterly reports and earnings call transcripts to debunk every single one of your points. I don't have the time to do so and would rather focus on the low hanging fruit. If you cant get the timing of the quarter right, it really calls into question your entire research (if any) and your "Foolish" opinion presented in this article.

  • Report this Comment On February 12, 2014, at 11:51 AM, nickeyfriedman wrote:

    @clanza875

    There was no errors in the article.

    I doubt you can debunk the points. It's JCP that's blowing it, not me.

    The terrible December, the easy comps, the embarrassing Jan 8 PR, the contradictory cold weather claims, and the competition doing better is not something anybody can debunk. I'm sorry, but J.C. Penney is a failure.

    The only "hole" you think is in the article is that I said JC Penney didn't have a peep to say about January. Guess what. The company didn't.

    I see no evidence anywhere in the article about when the fiscal quarter ends. I was taking your word for it that there was an error, but I see no error.

    Thank you for your comments. I appreciate them.

  • Report this Comment On February 12, 2014, at 4:26 PM, lagunakidd wrote:

    Our family use to shop at JC Penney a few times a month with their catalog. Since they discontinued the catalog we longer shop there. Same applies with Sears. The catalog was much more appealing then waiting for the pictures to download online. We were able to fold back the pages of the items we would order. I don't know why JC Penney and Sears shot themselves in the foot by eliminating their catalogs. The CEO's seem to think on their own, without seeing what the customers want.

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