The long-term prognosis for J.C. Penney (JCPN.Q) isn't very appealing, but that doesn't mean its shareholders can't come out ahead in the short run. Shares of the department-store operator rose 14.2% during the holiday-shortened trading week. Tack on another modest gain on Monday, and J.C. Penney stock has soared 17.4% through the first five trading days of 2018.
J.C. Penney spiked earlier in the week as reports continue to trickle in, suggesting that mall chains had a more robust holiday shopping season than originally expected. Analytics firm RetailNext now sees U.S. holiday sales exceeding its initial forecast of 3.8% growth, breaking sales records. Fellow industry tracker SpendingPulse pegs retail sales -- sans cars -- rising 4.9% from November through Christmas Eve, the strongest gain since 2011. The Commerce Department has already posted strong sales date for November, and we'll get an early read on the more telltale December period when the Advance Monthly Retail Trade Report becomes official on Friday morning.
Within the flurry of upbeat industry reports, J.C. Penney itself reported its holiday performance on Thursday. Comparable-store sales rose 3.4% for the nine weeks ended Dec. 30 pitted against the same period in 2016. The market initially sold J.C. Penney stock on the news, but it would quickly recover. Yesterday's close of $3.71 is the stock's highest close since late September.
Image source: J.C. Penney.
Penney loafers
J.C. Penney also reaffirmed its earlier full-year outlook, a letdown in light of the otherwise strong quarterly showing. There's a silver lining here, as the stock soared by more than a third following its fiscal third-quarter report which exceeded its earlier guidance. However, investors in retailers know that you can't value a chain on comps alone.
Quality of the underlying sales matters. J.C. Penney's comps rose 1.7% in its previous quarter, but margin still contracted, as a catalyst for the store-level sales gain was aggressive discounting to move out tired women's apparel. We'll have to wait until the actual quarterly report on March 2 to see if the holiday season was full of good cheer and wider mark-ups without building up its inventory levels.
Another problem with merely sticking to its earlier forecast is that it was itself sharply reduced three months ago. The bullish counter to all of the potential red flags behind the stock's strong start to 2018 is that the shares still remain depressed. The stock is still 55% lower than it was at the start of last year, and well below its all-time highs. The upside is there if it keeps inventory levels in check and if it can continue to grow its big-ticket appliance sales without taking on too much credit risk. J.C. Penney is still risky, but for the first time in a long time it's kicking off the year as a big winner.
