More than a year into its turnaround, J.C. Penney (NYSE:JCP) suffered its first stumble in the third quarter, reporting a surprise revenue shortfall as warmer weather kept consumers from stocking up on their winter gear. The stock, which had risen to its highest levels in a year, tumbled once more and today sits 16% below where it did 12 months ago.
The retailer remains financially fragile, but is well on its way to being healed. J.C. Penney might still be reporting losses at the moment, but they're dramatically lower than last year, and the company remains committed to ending 2014 being free cash flow positive.
Of course, much of this will be predicated upon J.C. Penney continuing to attract customers to its stores, and it admits in-store traffic remains negative. Customers either aren't returning or they're leaving faster than they're being replaced by new ones . Still those numbers continue to improve sequentially, and store conversion -- the measure of how many customers coming into a store buy something before leaving -- was up compared to last year, as was average transaction size and average unit retail for the quarter.
But investors need to be mindful that the consumer is still picky, looking to get the best deal possible. Those retailers willing to be promotional will likely do best. But that means they'll have to sacrifice profits in the process.