Every quarter, it seems analysts write off J.C. Penney's (NYSE:JCP) turnaround, believing the recovery is losing traction, but every time the retailer seemingly bounces back to surprise Wall Street with a better than expected performance. After what is being described as a strong finish to the Christmas season, it looks like J.C. Penney might just shock the pros once more.
Jingle (the registers) all the way
MasterCard reported that U.S. retail sales rose 5.5% year over year between Thanksgiving Day and Christmas Eve, better than the National Retail Federation's expectations for the two-month November to December period.
Of course, the results weren't even across retail. Consumer electronics, for example, were expected to be solid this holiday, but sales were flat from Thanksgiving to Dec. 24 and negative when measured from the beginning of November. That portends potential trouble for Best Buy (NYSE: BBY), though some analysts discount any problem for the big-box retailer thanks to sales of pricier TVs.
Explaining why J.C. Penney might upend predictions of its demise yet again, is that women's apparel finished with sales higher in the mid-single-digit range. That's better than the apparel industry overall, and because J.C. Penney fronts a strong image in women's clothing, it seems likely to come out ahead of the pack.
Don't discount the value of sales
Discounting will also no doubt have played a large role in the segment's performance, but the department store chain has recently held the line against being too promotional in a bid to preserve its profit margin.
J.C. Penney's third-quarter financial report showed sales dipped 0.5% from the year-ago period, but the retailer narrowed its loss to $0.77 per share -- ahead of the $0.80 per share Wall Street expected.
Management said its stronger gross margin performance resulted from fewer clearance items going out the door. Sales of discounted clothing were down 30% from the third quarter in 2013, even as Macy's (NYSE:M) and Kohl's (NYSE:KSS) offered more promotions. While the higher level of clearance items helped drive volume last year, J.C. Penney was willing to forgo the rush this time to keep margins intact.
Although the department store was reportedly cutting prices in half on some items, heading into the holiday season it still felt good about its inventory levels, clearance merchandise, and ability to turn traffic positive. That's because its partnership with Sephora continues to pay dividends.
Putting lipstick on a pig
The makeup and beauty supplier operates hundreds of boutiques in J.C. Penney that are especially popular with customers, delivering double-digit growth, driving traffic, and generating customer loyalty. Sephora alone accounts for mid-single-digit percentages of total sales at J.C. Penney.
While news outlets still focus on Black Friday and Cyber Monday as two days that drive retail, they are actually losing their halo as retailers widen their definition of when the holiday season begins. Many start sales earlier in November (some going into October or September), even as customers postpone purchases until almost the last minute.
Every day is Christmas
MasterCard said Super Saturday -- the last Saturday before Christmas -- and the days leading up to the day itself see some of the busiest sales. Such late spending is bound to lead to spending surprises, and that means rumors of J.C. Penney's death have been greatly exaggerated. Again.
Rich Duprey owns shares of J.C. Penney Company,. The Motley Fool recommends MasterCard. The Motley Fool owns shares of MasterCard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.