J.C. Penney's Friday Pop -- Is It Time to Get Into the Shares?

J.C. Penney's first-quarter results impress the market, but is it enough?

May 15, 2014 at 10:56PM

The lowest weekly initial jobless claims figure in seven years was not enough to lift U.S. stocks on Thursday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) down 0.9% and 1%, respectively. Unusually, the technology-heavy Nasdaq Composite Index (NASDAQINDEX:^IXIC) was less volatile than the former two indexes, losing just 0.8%. In company-specific news, it appears that disappointing results from Wal-Mart Stores (NYSE:WMT) and Kohl's this morning weighed on the retail sector today, including J.C. Penney (NYSE:JCP), which fell 2.8%. But J.C. Penney shares will make that up -- and more -- tomorrow, as the shares surged by nearly a fifth in today's after-hours session on better-than-expected first-quarter results. Is it time for investors to take a look at this turnaround story?


On the numbers: J.C. Penney beat Wall Street's expectations for revenues and earnings per share, as the following table demonstrates.


Actual/ Year-on-year growth (decline)

Analysts' c onsensus estimate


$2.8 billion


$2.7 billion





Source: J.C. Penney, Thomson FN

A same-store sales increase of 6.2% is impressive compared to its larger (and more stable) rivals – U.S. same-store sales at Walmart were flat, for example. However, this is partially a reflection of the challenges J.C. Penney faces and, consequently, greater volatility in its operating results.

Nevertheless, the company's outlook for the full year was pretty upbeat, including a mid-single-digit increase in same-store sales, significantly improved gross margin versus 2013, and free cash flow at breakeven. Moreover, the company appears to have warded off the risk of a cash crunch with an increased credit facility of $2.35 billion.

Where does that leave investors?
In early February when J.C. Penney announced its first instance of quarterly same-store sales growth in two-and-a-half years, I nevertheless wrote that individual investors ought to avoid the stock. Since the publication of that article on Feb. 4, the stock is up by nearly two-thirds – and that doesn't even include the pop the shares will experience tomorrow.

Was I wrong? In a very basic sense, the answer is, "Obviously, yes." In hindsight, it's now clear that the pessimism surrounding the stock was culminating as I was writing the article (literally so -- the shares put in their 52-week low of $4.90 on the publication date.) However, it's worth reviewing the rationale I invoked at the time, which had nothing to do with trying to second-guess investor sentiment:

Turnarounds are very difficult to pull off. Turnarounds in the brutally competitive retail sector are even more challenging, and the results can't always be maintained -- at which point, another turnaround becomes necessary. J.C. Penney belongs in the "too hard" pile – investors would be better off focusing their limited time and resources on outstanding, durable businesses.

Furthermore, one decent quarter does not diminish the challenges still ahead for J.C. Penney. The company isn't expected to earn a profit this year or the next; meanwhile, larger, profitable competitors -- bricks-and-mortar and online -- aren't exactly standing still. J.C. Penney may provide market-beating returns for investors who are either lucky, or a combination of knowledgeable and dedicated (or all three), but I continue to think the shares are generally unsuitable for individual investors.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the eight-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers