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Stock Market News: J.C. Penney Perks Up, Fitbit Needs a Cheat Day

By Dan Caplinger – Updated Apr 16, 2019 at 11:03AM

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Wall Street saw another quiet morning session.

The stock market gave up ground modestly on Thursday morning, reacting in part to the abrupt end of the Vietnam summit between leaders of the U.S. and North Korea. Just before 11:30 a.m. EST, the Dow Jones Industrial Average (^DJI 1.20%) was down 24 points to 25,961. The S&P 500 (^GSPC 0.89%) fell 3 points to 2,789, while the Nasdaq Composite (^IXIC) gave up 26 points to 7,529.

Despite geopolitical concerns, the health of the consumer economy remains critical to the fate of U.S. stocks in 2019. In the long-suffering big-box department store industry, J.C. Penney (JCPN.Q) gave shareholders a rare positive surprise in its latest quarterly earnings report. Yet the news wasn't as good for wearable device specialist Fitbit (FIT), which has faced stiff competition in an increasingly crowded niche market for fitness trackers and smartwatches.

Check out the latest Fitbit and J.C. Penney earnings call transcripts.

J.C. Penney makes big moves

Shares of J.C. Penney soared 25% after the retailer announced its fourth-quarter and full-year financial results. At first glance, the numbers looked ugly, with revenue falling 9.5% during the quarter on a 4% drop in adjusted comparable sales. Adjusted net income plunged almost 65% for the quarter, and the company posted full-year losses on lower revenue as well.

Text promotion featuring style at Penney.

Image source: J.C. Penney.

Yet investors were pleased that J.C. Penney's performance wasn't worse. Both sales and profit for the quarter were better than most had feared, and the retailer said it expects to be cash flow positive in 2019. CEO Jill Soltau also didn't shy away from making necessary moves to try to help the company recover, including the closure of 18 more full-line stores and nine home and furniture stores. The closure decisions focused on stores that need a lot of investment to maintain, perform poorly, or offer good opportunities to cash in on their real estate value.

It's critical not to overstate the importance of J.C. Penney's latest news, especially given the long-standing troubles the retailer has faced. Despite today's share price jump, the stock is still down by more than half over the past year, and many of its business challenges remain firmly in place. Nevertheless, J.C. Penney shareholders seem happy with the signs of progress that Soltau and her team have made during her tenure as chief executive, and further positive indicators could bring a sustained rebound.

Fitbit loses a step

On the downside today were shares of Fitbit, which lost 13%. The fitness tracking specialist's fourth-quarter results weren't entirely satisfying, with revenue coming in flat compared to year-earlier levels. Fitbit reversed a year-earlier loss with a modest profit for the period, but earnings of $0.06 per share fell short of investors' hopes.

Not all the news was bad. Fitbit sold 5.6 million wearable devices during the period, up 3% from year-ago levels on particular strength in the Asia-Pacific region. The company's newest devices, including the Versa, Ace, and Charge 3, made up almost four-fifths of overall revenue.

Yet investors were also concerned about profit trends. Average selling price during the period was down 2%, and gross margin fell as product mix shifted more toward smartwatches. That points to the increase in competition that Fitbit has seen in the fitness tracking space, with other companies looking to use their brand awareness and familiarity with the wearable industry to integrate fitness functions and offer rival products.

Fitbit needed to deliver particularly strong results this quarter, and although some of its performance was encouraging, it wasn't enough to satisfy high expectations. In order to return to full health, Fitbit needs to demonstrate its ability to regain pricing power and once again become the leader of its niche.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.

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