by Robert Martin | November 7, 2013 10:58 am
JCPenney (JCP) same-store sales improved in October — news that sent JCP stock up as high as 6% in Thursday morning trading.
JCP comps rose a meager 0.9% year-over-year last month, but that was the first time the metric was positive since December 2011. It also improved from a 4% drop in same-store sales in September.
No wonder some JCP stock investors were cheering this morning.
Still, today’s slight rebound for JCPenney stock doesn’t even make up for yesterday’s losses alone … much less the brutal year-to-date slide of nearly 60% that JCP has suffered.
Believers in JCP stock see the improvement in same-store sales as a move in the right direction. The company attributed the improved sales trends to the restoration of inventory levels in key private brands. Home, men’s apparel and women’s accessories were also strong segments.
Such fundamental improvements could help the struggling department store get back on track. And investors seem to think the positive metric is a sign that the worst is over for JCP stock.
Retail rebounds have happened before. Just look at retailers like Best Buy (BBY) and Sears Holdings (SHLD). Both names were written off as dead last year, but BBY has sizzled to 250% gains year-to-date, while even SHLD is beating the market so far in 2013.
Bottom-fishers must believe a similar recovery is possible for JCP stock.
Still, the improvement must be taken with a grain of salt. JCPenney sales were murdered in 2012 under the disastrous guidance of Ron Johnson — a former star at Apple (AAPL) and Target (TGT). That year alone, JCP revenue fell by around 25%.
Also keep in mind that sales are expected to fall another 8% this year. So a minuscule year-over-year improvement in comps isn’t about to lift revenues anywhere near pre-Johnson levels.
JCPenney earnings are also slated to be more than $6 per share in the red for the full-year, and are on track to be $2.64 per share in the red next year. So it will be a slow march for JCP sales to show consistent and substantial improvements — and it will be an even slower march for that to trickle to the company’s bottom line.
Plus, shares are trading for around $8 right now — far off the $22 price tag it sported a year ago. That means a JCPenney stock recovery is also an uphill battle full of resistance.
Toss in rumors of bankruptcy, the spur-of-the-moment secondary offering of JCP stock, and the fact that Mike Ullman — whose failure at CEO led to Johnson’s hiring — is back at the helm, and there’s plenty of reason for caution.
It’s difficult to time a bottom in a flailing stock, and JCPenney stock is no exception. The same-store sales metric is a promising one, but don’t go buying JCP at the first glimpse of progress.
Besides, JCPenney stock has posted a few short-lived runs before, but has followed each by losing all its gains and them some.
There’s no reason to bottom-fish until you have more than one piece of evidence that JCP isn’t doomed.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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