by Alyssa Oursler | November 20, 2013 10:00 am
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.
What 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.
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.
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.
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.
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.
Source URL: http://investorplace.com/2013/11/jcp-stock-jcpenney-earnings/
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