Wider-Than-Expected Loss Doesn’t Hamper JCP Stock

Sales also miss expectations, but JCP still opens solidly higher

   

Wider-Than-Expected Loss Doesn’t Hamper JCP Stock

JCPenney (JCP) reported third-quarter earnings that were downright ugly Wednesday morning, yet JCP stock opened roughly 9% higher after the release before pulling off the gas a little.

JCPenney185 Wider Than Expected Loss Doesnt Hamper JCP StockWhat had JCP stock investors cheering?

Well, the most obvious tidbit of good news in the JCPenney earnings report was actually data we got from a couple weeks ago: positive same-store sales. Comps increased 0.9% in October — the first time the metric was positive since December 2011.

However, despite that single month of less-terrible sales, the JCPenney earnings report showed that comparable-store sales still declined nearly 5% for the full quarter.

But that didn’t stop investors from bidding the stock higher early this morning.

Third-Quarter JCPenney Earnings

Digging deeper into the third-quarter JCPenney earnings report, we see that the company reported net sales of $2.78 billion for the period. That just missed the Street’s expectations, as JCP stock analysts had hoped for $2.8 billion in sales. It also represented a decline from sales of $2.93 billion during the same period a year ago.

Even worse: That figure was more than 30% worse than the nearly $4 billion in sales JCPenney registered in 2011. Yes — before the can’t-look-away-disaster of Ron Johnson attempting to remake JCP.

Those falling sales translated to an adjusted net loss of $1.81 per share of JCP stock for the last three months — worse than the already-lowered $1.72 per share analysts were expecting and nearly double the 93 cents per share that showed up in the JCPenney earnings report a year ago.

Still, CEO Mike Ullman was optimistic in the earnings release, saying:

“Our strategies to reconnect with customers are beginning to take hold, and this became increasingly clear as the quarter progressed … We are proud of the Company’s October sales performance, encouraged by the early weeks of November, and believe we are making strides toward a path to long-term profitable growth.”

The only other glimmers of hope besides a happy head honcho? JCPenney repaid $200 million from its revolving credit facility, and online sales increased by nearly 25%.

But, as I’ve mentioned before, investors would be willfully naive to believe e-commerce will add value to JCP shares.

Low Expectations for JCP

Of course, there’s another explanation for the optimism surrounding JCP stock this morning: JCPenney earnings coming in far worse than expected has actually become a regular expectation.

Just take a look at this table of JCPenney earnings history, courtesy of Yahoo Finance.

jcpenney earnings1 Wider Than Expected Loss Doesnt Hamper JCP Stock
Penney was expected to post a loss in each of the four quarters prior to this morning’s report, then proceeded to dish out numbers that were brutally worse than the consensus. In fact, the retailer lost a total of $4.26 per share more than Wall Street had expected in those four periods combined.

No wonder JCP stock investors have become numb to both a sea of red and a pile of disappointments in JCPenney earnings releases.

A Long Way to Go for JCP Stock

It’s important to take the jump in JCP stock with a grain of salt. Yes, betting on a turnaround in JCPenney stock has made short-term traders a quick buck. During the past month, JCP has gained more than 30% including this morning’s gain, while the broader market has barely budged in comparison (up less than 3%).

But anyone who has held the stock for longer than a few weeks still is much closer to breakeven or more likely in the red. Longer-term, the recent “recovery” in JCP stock is barely a blip on the company’s downfall.

Year-to-date, JCPenney stock is sitting 53% in the red despite today’s small serving of optimism. Meanwhile, its single-digit price (it just passed $9 this morning) is a far cry from its $80 levels from early 2007.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/11/jcp-stock-jcpenney-earnings/.

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