After losing more than 30% of its sales volume in a disastrous two-year period from 2012 to 2013, J.C. Penney (NYSE:JCP) has started to claw its way back into relevance. The company recently put the finishing touches on its second year of sales growth.
J.C. Penney hasn't gotten much help from the economy. While gas prices have tumbled to multiyear lows, retail sales have remained weak. During the critical month of December, seasonally adjusted sales at clothing stores rose just 0.6% year over year.
Instead, J.C. Penney has had to take market share from fellow mid-range department store chains Kohl's (NYSE:KSS) and Sears Holdings (NASDAQOTH:SHLDQ). Based on all three retailers' most recent investor updates, it looks like J.C. Penney continued to steal business from Kohl's and Sears last quarter.
J.C. Penney gets back on track
After its disastrous 2012-2013 performance, J.C. Penney turned things around in fiscal 2014. Comparable store sales rose 4.4%, while total sales increased 3.4% year over year, reflecting the impact of store closures.
Meanwhile, Sears Holdings continued to lose sales during 2014. Domestic comparable store sales sank 1.8%, while total sales fell by $2 billion (roughly 6%), excluding the impact of spinning off two subsidiaries. Finally, comparable store sales slipped 0.3% and total revenue was approximately flat at Kohl's during fiscal 2014.
J.C. Penney's share gains continued during the first three quarters of fiscal 2015, as comparable store sales rose 4.6% and total sales increased 3.2%.
As for its competitors, Kohl's did return to revenue growth with 0.8% comparable store sales growth and a 1% uptick in total sales. However, the sales trend worsened at Sears. Domestic comparable store sales plunged 10.1% through the first three quarters of the year, while total sales (again adjusting for spinoffs) fell by about 14%.
Penney's momentum continues
J.C. Penney, Kohl's, and Sears have all provided sales updates since the holiday shopping season ended. Based on these preliminary results, the trend of improving sales at J.C. Penney, stagnation at Kohl's, and steady decline at Sears continued last quarter.
J.C. Penney reported in early January that comparable store sales rose 3.9% for the November-December period. By contrast, Kohl's and Sears have both issued Q4 sales and earnings warnings this month.
Kohl's stated last week that comparable sales inched up 0.4% and total sales grew 0.8% during Q4. This was less than the company had planned. Furthermore, Kohl's had to offer big discounts to move its merchandise, causing gross margin to deteriorate.
At Sears, comparable-store sales slumped 7.1% during Q4. While that was better than its sales trend earlier in the year, Sears' management had been expecting more improvement. Furthermore, like Kohl's, Sears faced significant gross margin pressure last quarter.
Consumers are voting with their dollars
J.C. Penney, Kohl's, and Sears all primarily target middle-class consumers. For the most part, these people aren't opening up their wallets, even though the economy is gradually improving and gas prices are low.
However, to the extent that they are spending more money at department stores, they seem to be more interested in J.C. Penney than either of its rivals. Even Kohl's -- which was still a growth juggernaut just five years ago -- has had trouble generating any sales growth recently.
It's true that J.C. Penney may be getting a boost from customers who stopped coming when the chain tried to cut back on discounts several years ago and are now returning. That said, Sears has been hemorrhaging revenue for years, with no end in sight. It's not always easy to bounce back from sales declines.
If J.C. Penney can put together another year of market share gains in 2016, it could potentially return to profitability this year. That would be a remarkable comeback for a retailer that seemed to be caught in a death spiral just a few years ago.
Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.