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What: Shares of J.C. Penney (NYSE:JCP) were rallying today, climbing as much as 26% after reporting better-than-expected fourth-quarter earnings.
So what: The ailing department store chain may have finally turned the corner, or at least that's what the market thinks. Same-store sales improved 2%, and gross margin was up 460 basis points over 2012's dreadful fourth quarter. Revenue fell 2.6% to $3.78 billion, due to the loss of a week in the calendar, missing estimates at $3.84 billion. Still, the bottom line was promising, improving from a loss of $1.95 a year to a shortfall of $0.68, beating estimates of $0.87. That beat and the improved comps were enough to lift the stock. The department store chain also had positive free cash flow in the quarter of $246 million.
Now what: CEO Myron Ullman said the company had "stabilized our business," restored several processes, and that the turnaround "remains on course heading into 2014." Looking ahead, he expects comparable sales of 3% to 5% for the first quarter and in the mid-single digits for the full year. That would be fine if J.C. Penney were a healthy operation, but the company dug itself a huge hole under former CEO Ron Johnson. Analysts are still expecting sizable losses for the next two years, and last quarter's 2% comp gain comes after a whopping 31% loss. Liquidity does not seem to be a problem, as the company finished the year with more than $1.5 billion in cash equivalents, but J.C. Penney may just end up drowning a slow death in red ink.
Jeremy Bowman has no position in any stocks mentioned., and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.