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What: Shares of J.C. Penney (OTC:JCPN.Q) were rallying today, climbing as much as 26% after reporting better-than-expected fourth-quarter earnings.
So what: The ailing department store chain may have finally turned the corner, or at least that's what the market thinks. Same-store sales improved 2%, and gross margin was up 460 basis points over 2012's dreadful fourth quarter. Revenue fell 2.6% to $3.78 billion, due to the loss of a week in the calendar, missing estimates at $3.84 billion. Still, the bottom line was promising, improving from a loss of $1.95 a year to a shortfall of $0.68, beating estimates of $0.87. That beat and the improved comps were enough to lift the stock. The department store chain also had positive free cash flow in the quarter of $246 million.
Now what: CEO Myron Ullman said the company had "stabilized our business," restored several processes, and that the turnaround "remains on course heading into 2014." Looking ahead, he expects comparable sales of 3% to 5% for the first quarter and in the mid-single digits for the full year. That would be fine if J.C. Penney were a healthy operation, but the company dug itself a huge hole under former CEO Ron Johnson. Analysts are still expecting sizable losses for the next two years, and last quarter's 2% comp gain comes after a whopping 31% loss. Liquidity does not seem to be a problem, as the company finished the year with more than $1.5 billion in cash equivalents, but J.C. Penney may just end up drowning a slow death in red ink.