In light of the over-7% setback J C Penney Company Inc (NYSE:JCP) shares suffered on Thursday following a dismal first quarter report from Macy’s Inc (NYSE:M) and from Nordstrom, Inc. (NYSE:JWN), it’s reasonably safe to say JCP stock holders weren’t expecting the earnings report released Friday morning to be any more compelling. As it turns out, traders were right to be pessimistic.

For the quarter ending in April, JCPenney turned $2.7 billion in sales into an operating profit of six cents per share, topping income estimates even if missing sales estimates. The struggling retailer was expected to report a loss of 21 cents per share on sales of $2.77 billion. For perspective, JCPenney lost 32 cents per share and drove $2.81 billion in revenue for the comparable quarter a year earlier.

CEO Marvin Ellison commented on the quarterly results:

“We continue to make encouraging progress in the Company’s competitive and financial position despite our top-line performance during the first quarter. While February was a very challenging month for JCPenney and broader retail, we are pleased with our comp store sales for the combined March and April period, which improved significantly versus February.”

Investors, seeing the glass as half-empty rather than half-full, sent JCP stock down as much as 10% in premarket trading.

JCPenney Earnings in Focus

The numbers in and of themselves weren’t bad. But, in light of the fact that the company is supposed to be in the midst of a turnaround, the disappointing sales figure served as a stark reminder that Penneys is still facing a headwind.

Perhaps the most damaging number of all was the same-store sales decline of 3.5% … a number that reflects the company’s retailing strength free of any unusual one-time costs. That said, on a GAAP basis, the loss of 58 cents per share thanks to expenses related to store closings and early retirement expenses certainly didn’t bolster the bullish argument.

There were some bright spots. The company’s home goods, fine jewelry counters, salon and its Sephora shops all saw sales growth on a year-over-year basis.

Sephora is a cosmetics brand that has been established as a “shop within a store” inside many JCPenney locales. Though they take up a significant amount of square footage, it has been worth the trade-off. That’s why retailer announced last month it would be adding Sephora shops in another 70 stores this year, and would also be expanding another 32 existing shops.

Gross margins also grew 100 basis points to 36.3% of sales. And, adjusted EBITDA for the first quarter grew 67% to $255 million.

That, however, is where the good news stops. Selling and general/administration expenses edged a little higher relative to sales, and total operating expenses swelled from 35.4% of revenue a year-ago to 40.2% of sales last quarter. Operational cash flow was once again negative.

Looking Ahead for JCP Stock

Despite a lackluster first quarter, the company remains optimistic. Ellison also said in the earnings press release:

“The recent sales trends, combined with the improvement in women’s apparel and our growth initiatives led by Sephora inside JCPenney, jcp.com and major appliances, provide us with the confidence to maintain our sales guidance for the full year.”

That guidance calls for same-store sales to roll in between 1% lower and 1% higher than last year’s figure. The retailer also anticipates improving its gross margins between 20 and 40 basis points while simultaneously lowering its selling and administration expenses between 1% and 2% year-over-year. That should be enough to turn a profit of between 40 cents and 65 cents per share of JCP stock, according to the company.

Penneys did not provide second-quarter guidance. Prior to the company’s release of its Q1 results, however, analysts were anticipating Q2 income of eight cents per share on revenue of $2.85 billion. Though that top line would mark a 2.4% decline, the profit would mark a swing from a loss of five cents per share in the first quarter of the previous year.

That outlook, however, was also based on the likelihood that at least some stores would be closing per the company’s March announcement it would be shuttering as many as 140 stores. In the meantime though — after seeing reasonably healthy results on April — the retailer has opted to at least postpone those closures, giving them a chance to contribute a profit rather than detract from it. Analysts may not have updated their figures yet.

The same idea applies to the full-year numbers. Analysts were looking for a 1.7% slide in sales to $12.33 billion, but in that it intended to shed its dead-weight units, profits per share of JCP stock were expected from last year’s eight cents to 46 cents per share this year. It’s not clear how, or even if, the store-closure plan will lead to changes in its forward-looking estimates.

One thing is clear though … Penneys still has a lot of work to do.

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