While Sears Holdings (SHLD +0.00%) continues to see massive drops in same-store sales even as it closes locations, J.C. Penney (JCP +0.00%) has returned to growth.
That's an encouraging development for a chain that has always seemed to have a stronger turnaround plan than its rival. J.C. Penney has made smart moves, including making major shifts in its merchandise and embracing a store-within-a-store concept. In addition, the company has been more selective about closures, and has gone into appliances and home services in markets Sears has abandoned.
These are smart moves that have worked -- to a point -- so far. J.C. Penney is not out of danger, however, and its long-term recovery remains very much in doubt.
Data source: YCharts.
What happened?
J.C. Penney had a mixed third quarter. The company saw its losses go from $67 million last year to $128 million in 2017. On the positive side, however, comparable-store sales did increase by 1.8% in the quarter. In addition, much of the increased loss can be explained by the company making a decision to sell off merchandise at heavy discounts as part of a strategy to change its inventory mix.
The chain has continued its positive comparable-stores growth momentum through the holiday season. J.C. Penney reported that its comparable store sales for the combined nine-week period ending December 30, 2017 increased 3.4 % over the same period last year.
"We are very encouraged with our overall comp sales performance during the holiday season, which was led by home, beauty and fine jewelry. Additionally, our apparel categories continue to demonstrate improved comp performance, particularly in women's and kids," said CEO said Marvin Ellison in a press release.
The CEO also pointed out that the retailer's e-commerce business continues to grow by double digits, "largely driven by sought-after gifting categories such as fine jewelry, home decor and luggage, toys, boots and athletic footwear." Ellison noted that the chain's digital success was driven by using its brick-and-mortar locations to fulfill online orders.
J.C. Penney has been using its stores to fulfill digital orders. Image source: J.C. Penney.
Not there yet
These are good signs, but increased same-store sales are not the same as profitability. The chain has shown that it's not Sears and that the end is not inevitable. What J.C. Penney has not shown is that it can make money or succeed without heavy discounts.
"As we close out fiscal 2017, we remain committed to operating the business for growth, while providing our customers more reasons to shop and experience everything J.C. Penney has to offer," Ellison said.
That sounds nice, and these preliminary numbers are encouraging, but the real test comes on March 2 when the chain reports Q4 results. If J.C. Penney shows that it has cut or even eliminated its losses, then perhaps investors can exhale and the company can claim that its turnaround has taken hold.
Without profits, however, same-store sales growth means nothing. J.C. Penney remains vulnerable despite there being some signs that the moves it has made to fix its business are going to work.
