What happened

Shares of J.C. Penney (NYSE:JCP) were surging today as the department-store chain overcame a low bar in its fourth-quarter earnings report, as results weren't as bad as expected. That, along with its announcement of a handful of store closings and optimism about the company's turnaround potential under new CEO Jill Soltau, drove the stock up 29% as of 12:26 p.m. EST.

So what

J.C. Penney's results were far from inspiring, as comparable sales fell 4% on a shifted basis, which was worse than the 3.5% decline the company reported in the fourth quarter. Still, those results were modestly better than the 4.3% drop analysts had expected.

The exterior of a J.C. Penney department store.

Image source: J.C. Penney.

Overall revenue was down 8.4% to $3.79 billion, which includes some store closings, matching estimates. Gross margin was down 220 basis points to 31.3%, though that was primarily the result of planned markdowns in order to clear excess inventory. The retailer did reduce inventory by 13.1%, putting it in a cleaner position as it starts 2019.

Selling and general and administrative expenses rose 150 basis points to 27.5% of sales due in part to the decline in comps, and adjusted earnings per share fell from $0.51 to $0.18, though that topped analyst estimates at $0.11.

CEO Jill Soltau struck an optimistic tone, saying:

Based on everything I have seen and heard, I am even more convinced that JCPenney is a revered brand that has the capacity to deliver improved results. In spite of our past financial performance, we have already taken meaningful steps to drive improvement in key businesses such as women's apparel, active apparel, special sized apparel and fine jewelry. As we forge a path to sustainable profitable growth, our decisions included eliminating non-core and low gross margin product categories, significantly reducing unproductive inventory and continuing the revitalization of our women's apparel business.

Penney also said it would close 18 full-line stores, including the three it had previously announced, and nine smaller home and furniture stores. It said nearly all of the store closings would take place in the second quarter.

Now what

The company declined to give specific guidance for 2019, which was probably a smart move considering that it's regularly underperformed its own benchmarks in recent years.

However, management did forecast a positive free cash flow for this year, which would be an improvement over the negative $33 million in FCF the company reported in 2018.

While today's report hardly marks an inflection point in J.C. Penney's turnaround, given the company's beaten-down share price, there seems to be enough good news here, including reduced inventory and the positive FCF forecast, to give the stock a boost.