Wall Street refuses to accept that J.C. Penney (NYSE:JCP) is making good on its promises of a turnaround. Almost every quarter, the company beats analyst expectations, and like clockwork they say, "But next quarter is going to be different!"
While the department store chain has yet to report its fourth quarter results, it did update investors on how the all-important Christmas season went, and if those numbers are any indication, J.C. Penney will once again be shaming Wall Street.
Its rivals can't say the same. Macy's (NYSE:M) suffered yet another disappointment and reported that comparable-store sales fell 5.2% over the two-month holiday sales period, while Kohl's (NYSE:KSS) is considering going private after falling almost 40% from its 2015 highs.
J.C. Penney, on the other hand, did even better than expected, with comps jumping 3.9% during November and December. And when you look at their two-year stack, comps are up 7.6%, suggesting its sales are accelerating during the holidays.
It's not as if J.C. Penney faced better conditions than its competitors. Many retailers said the unseasonably warm weather wreaked havoc on winter clothing sales. Macy's said a lack of demand for cold weather apparel was responsible for 80% of its falling comps, while J.C. Penney acknowledged that warmer-than-expected temperatures "significantly affected apparel sales across the Company."
But unlike J.C. Penney and Kohl's, Macy's also has broad exposure to international tourists who shop at its flagship stores, including the one at Herald Square in New York City. As the U.S. dollar surged in value against foreign currencies, tourists lost purchasing power, and this problem has plagued the upscale retailer through all of 2015. A euro was worth $1.18 last January, but today, it goes for around $1.08.
Department stores, even J.C. Penney for all its better performance, have been hit by the one-two punch of discount chains like TJX Companies, which operates T.J. Maxx and Marshall's, and online merchants like Amazon.com, which snared an estimated 42% of all e-commerce sales this Christmas. Cautious consumers are leaning heavily on those two channels when making a purchase.
Yet J.C. Penney reported it was the strength of its online offerings that helped offset the weakness elsewhere, suggesting the investments it has made in its omnichannel operations were worth the cost. It now has 250 stores that fulfill online orders, building on the buy online, pick-up in store model pioneered by Wal-Mart.
Using brick-and-mortar stores as distribution points for e-commerce sales helps narrow the gulf somewhat between retailers with physical locations and those that operate online only. Even Macy's saw a 25% increase in online sales and said it processed a record 17 million orders in November and December.
It's telling, though, how each retailer has responded to the constrained consumer. Macy's, and to a lesser extent Kohl's, are using the T.J. Maxx model to attract customers looking for discounts. However, by opening separate stores that offer low-cost deals, they run the real risk of cannibalizing sales at their full-price locations. In contrast, J.C. Penney has played to its strengths, bringing back the doorbuster sales its customers expect and stocking up on the private-label brands they demand.
J.C. Penney's stock keeps getting dragged down every time Macy's and Kohl's disappoint, as analysts (not unreasonably) lump all of the department store chains together. But Wall Street should also understand that J.C. Penney is not exactly like the other two, and until they do, the professionals will continue to put on their shocked faces every time the retailer trumps their expectations.