Financial Performance

Sales Rebound Drives JC Penney Stock up 14%

Penney's surprising 1.7% gain in same-store sales indicates its "strategy of purging excess inventory and closing underperforming stores" is paying...
Matthew HellerNovember 10, 2017

J.C. Penney’s third-quarter results gave a surprising boosts to hopes of a turnaround at the retailer, with same-store sales showing their first gain in a year.

The 1.7% increase in comparable store sales topped analysts’ estimates of a 0.7% upswing and followed a 1.3% decline in the second quarter. The surprise beat helped drive Penney’s stock up 14.6% to $3.17 in trading Friday.

The company’s total sales of $2.81 billion fell 1.8% from $2.86 billion a year ago but exceeded analysts’ expectations of $2.77 billion. Excluding items, Penney lost 33 cents a share against estimates of 43 cents per share.

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According to The New York Times, the results indicated “the chain’s strategy of purging excess inventory and closing underperforming stores was paying off.”

“We are encouraged that we delivered positive sales comps for the third quarter,” Penney CEO Marvin Ellison said in a news release. “Our growth strategies and new apparel initiatives led to sequential comp sales improvement in nearly all merchandise categories in the third quarter, giving us confidence that our overall strategy and transformation is beginning to take hold.”

Only two weeks ago, Penney shares fell more than 14% after it warned its third-quarter loss would be far worse than analysts expected due to heavy discounting on its apparel lines. It also predicted same-store sales would rise 0.6% to 0.8%.

“It’s not clear why Penney underestimated its own sales by that much when there was only one day left in the quarter,” Fortune commented.

The company has been discounting apparel, a declining category across retail, as it shifts its focus to large items like appliances and services like home installations. Appliance sales doubled in the third quarter, according to Ellison.

Penney’s net loss nearly doubled to $128 million from $67 million a year earlier, due to the inventory clearance as well as, among other things, store closing costs. It plans to close as many as 140 stores — 14% of the total — in the months ahead.

“While we have more work to do, we remain focused on two critical factors — to operate the business for growth and deliver positive earnings,” Ellison said.