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J.C. Penney Posts Improved Sales Metrics

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Shares of J. C. Penney Company, Inc. (JCP - Analyst Report) nudged up 1.2% to close at $8.23 on Nov, 8, 2013, after CEO Myron Ullman announced upbeat comparable-store sales results for the month of October.

Comps rose 0.9%, increasing 490 basis points from September. The improvement was driven by restoration of inventory levels of its significant brands such as St. John’s Bay, Stafford, and jcp Home (TM). Brands such as Levi’s, Nike, Carter’s, Dockers, Alfred Dunner, Vanity Fair, and IZOD also generated considerable sales.

The Plano, Texas-based retailer announced that sales on jcp.com for the month under review increased 37.6% year over year on the back of constant improvement in the company’s online platform. The home merchandise division registered online sales growth of 50% year over year.  Sales in Home categories represented nearly half of the total .com sales for the month of October.  Women’s, Men’s and Children’s apparel were also sturdy performers.

The company hinted that gross margin for the third quarter (with October witnessing highest margin levels) increased from the previous one.

J. C. Penney also unveiled 30 Sephora stores in October, bringing the count to 446.

Earlier, J. C. Penney had revealed that its key sales barometer improved in September from the prior month and is expected to last through the remainder of 2013, owing to its turnaround efforts.

J. C. Penney has been in troubled waters for quite some time, given its waning revenues and increased losses. The company has not shown any signs of recovery in the recent past. This is evident from its 7th consecutive quarter of sluggish results on Aug 20. The company has been constantly lagging its peers like Macy’s Inc. (M - Analyst Report), Target Corporation (TGT - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report) in terms of performance.

However, the company has taken several strategic initiatives to drive traffic and conversion. The company reverted to promotions, which could be a successful sales driver this holiday season.

Investors remain cautious about the stock, as the company endeavors to recover and give itself a major facelift. In a significant development, the company’s board of directors in Apr 2013 discharged the Chief Executive Officer (CEO) Ron Johnson of his duties after 17 months, as his ambitious transformational ideas failed to materialize. Consequently, the company’s former CEO, Myron Ullman was reinstated in his post.

The company will post third-quarter results on Nov 20. However, our proven model does not conclusively show J. C. Penney is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to beat the estimate but this is not the case here. Although the stock carries a Zacks Rank #3 (Hold), it has an  ESP of -23.03% (as the Most Accurate estimate stands at a loss of $2.03 per share, while the Zacks Consensus Estimate is pegged at a loss of $1.65).

The above view is well supported by J. C. Penney’s earnings surprise history. The latter shows that the company has missed the Zacks Consensus Estimate by an average of about 523.2% in the trailing four quarters.

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