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Did J.C. Penney, Inc. Just Signal the End Is Here?

By Rich Duprey - Feb 4, 2014 at 2:40PM

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The troubled retailer's preliminary Christmas numbers indicate the turnaround is going nowhere fast.

Finally, troubled retailer J.C. Penney (JCPN.Q) fleshed out its Christmas sales report with some meat investors could sink their teeth into. Unfortunately, it's been on a starvation diet and there's not much more than gristle to gnaw on.

According to Penney, for the nine-week period encompassing November and December, same-store sales rose 3.1% and for the full quarter were up 2% over the year-ago period. Since it marks the first time since the second quarter of 2011 the metric's been in positive territory, it is something of an accomplishment. Not much of one, but an accomplishment nonetheless.

Maybe my back-of-the-envelope math is wrong here, but it previously told us October's comps were up 0.9% followed by a big ramp-up to 10.1% in November. It didn't give us a December number, but comparing those figures to the final nine-week numbers and total quarter results, it suggests to me that we had a big miss in December. And mind you, last year's fourth-quarter numbers were simply horrible: Total sales plunged more than 28% to $3.9 billion and comps were down even more, declining 31.7%, so we're only talking about a 2% increase in same-store sales over some of the worst numbers it's ever posted.

Although the markets were initially enthused with the report, boosting Penney's stock more than 4% higher in early-morning trading, it's since tumbled by more than 10% by midday. It's not completely unwarranted, mind you, because the retailer is knocking on death's door. While the fact that it was able to get any customers to shop again at its stores is good, and stacking it up against the more fiscally fit Macy's, which reported its comps were just 4.3% higher over the November and December period, suggests Penney held its own, it's not nearly enough to say Penney's recovery is gaining traction.

While Kohl's hasn't said how it did yet (though it was pretty much tracking Penney's trip down last quarter), Sears Holdings said it saw a better-than-7% drop, but then again, that's not so surprising either, as Sears is arguably in the same shape as Penney. 

Moreover, Penney didn't offer additional insights on margins, though we can draw clues from the doorbuster sales it was offering across the Christmas season: We can expect them to take a drubbing. That probably explains why the chain is raising prices ahead of the Valentine's Day sales period, allowing it to cut them so customers get the "sales" they want while it keeps its margins intact. When it gives its final quarterly tally at the end of the month, it can then report how well things are progressing.

Turnarounds take time, and I've chastised analysts who have tried to hurry up the process, so perhaps I'm succumbing to some of the same bias myself. But it seems to me the horrid retail holiday experience also visited J.C. Penney, and that this experiment in a reversal of fortunes has finally run its course.

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