Will J.C. Penney Earnings Push Shares Higher?

Discount retailer J.C. Penney (JCPN.Q) continues to work toward a long-term turnaround, having suffered years of massive losses and with strategic miscues having cost the company valuable time in its efforts. Even as Penney appears to make slow but steady progress, though, its share price has remained largely flat since February. As Penney prepares to release its fiscal second-quarter financial report on Friday, investors want to see more concrete signs that the worst is behind the retailer and that share-price gains will be forthcoming in the near future. Let's take an early look at whether J.C. Penney is likely to show investors what they want and what its future prospects are.

Stats on J.C. Penney

Source: Yahoo! Finance.

Can J.C. Penney earnings bring investors good news?
Investors have gotten a lot more upbeat about Penney's long-term earnings prospects, narrowing their expected loss estimates for the second quarter by $0.03 per share and reining in losses in this fiscal year and next by as much as a third. The stock, though, hasn't moved much lately, falling about 1% since early May.

J.C. Penney's fiscal first-quarter report in May showed the mixed results that the retailer saw earlier in 2015. Sales inched up by 2%, but same-store sales growth of 3.4% represented a substantial slowdown from both the first quarter of 2014 as well as the preceding holiday quarter. Penney did guide its projected comps for the full 2015 fiscal year to the upper end of its previous range, expecting 4%-5% same-store sales growth this year. Yet even though losses were narrower than expected, the red ink continued to flow, with a net loss of $0.55 per share showing only slow but steady progress.

Still, J.C. Penney has seen some successes that could help drive performance well into the future. Its partnership with beauty-supplier Sephora has gone extremely well, with store-in-store boutique locations helping to draw in new customers and give existing customers another reason to return to Penney stores. During the first quarter, Penney opened 23 new locations, boosting the total to more than 500. Moreover, in May, Penney started offering Sephora merchandise through its online channels, further cementing the relationship and potentially driving greater sales from the Penney website as well.

Indeed, what Penney calls the omnichannel opportunity is of increasing importance to the retailer's future. To try to take greater advantage of its brick-and-mortar network, Penney has made ship-to-store options available to online customers. Doing so leverages the distribution capabilities already in place to support retail locations and also pulls online shoppers into its physical stores, where Penney hopes they will be more likely to spend money on additional items. Earlier this month, Penney brought on two executives with extensive retail experience at other successful companies whose specific job will be to broaden the company's reach through all of its sales channels.

One threat to Penney's recovery is the distraction of recent legal action. A federal court certified a class action lawsuit in May in which plaintiffs have argued that the retailer's tactics in offering products on sale used misleading price comparisons to non-sale prices that Penney allegedly never actually charged. Such tactics are common throughout the industry, and Penney is far from the only retailer that is facing legal action on the issue. Yet for a company seeking to figure out long-term business strategy, dealing with litigation is an unwelcome drain on already tight resources.

In J.C. Penney's earnings report later this week, investors should keep an eye on fundamental figures like same-store sales growth and further reductions in the retailer's net losses. Yet the bigger question facing Penney is whether it can not only get back the customers it lost in recent years as a result of its strategic whipsawing but also lure in new shoppers with initiatives like its Sephora partnership. If investors ever want Penney shares to start rising dramatically again, the retailer will need to work harder and faster in building out its recovery plans.