JCPenney’s Hot Holiday Sales: Is JCP Stock a Legit Rebound Play?

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J C Penney Company Inc (JCP) enjoyed surprisingly strong holiday sales, sending JCP stock up 20% in extended-hours trading, and suddenly one of last year’s retail dumpster-fire stocks looks like a possible contender for a 2015 turnaround play.

jcpenney185 jcp stockTo be sure, the department-store chain still is in a world of trouble as it tries to undo near-lethal wounds it suffered under the hands of the previous management team. But give credit where it’s due: JCP had a very fine holiday selling season, and that’s a necessary and welcome first step if JCP stock has any hope of upside — to say nothing of market-beating returns — in 2015.

JCP said same-store sales — a critical measure of a retailer’s health — rose 3.7% in the nine weeks through the end of December. That’s a solid acceleration from the year-ago period when same-store sales increased 3.1%.

More importantly, it’s a big comeback from disappointing back-to-school revenues. It was awfully lame when JCP same-store sales couldn’t even hit Wall Street’s forecast for 2.8% growth in the most recent quarter.

The strong same-store sales growth shows that JCP not only had the right merchandise for the holiday selling season, but that it had the correct promotional plans to move it. The bottom line is that the holiday period sets JCP up for better-than-expected fourth-quarter results.

JCP said current-quarter sales growth should now come in at the high end of its forecast for a 2% to 4% year-over-year gain. Analysts at Retail Metrics were looking for sales to grow 2.7% in the current quarter.

JCP Stock: Same-Store Sales Are Key

Rising same-store sales are critical to a retailer’s success because they’re an indicator of profitable growth. After all, it’s easy to grow total sales — just open more stores. But stores are costly, so it’s imperative that a retailer squeeze more sales out of its existing store base if it has any hope of seeing rising profit margins. As JCP Chief Executive Myron Ullman said in a statement:

“Our highest priority over the last year has been to restore profitable sales growth. This holiday season was instrumental in that effort.”

At any rate, rising sales and margins are the next step in a successful turnaround plan for JCP, and the holiday results show that it is indeed possible. As slim as it may be, JCP has a chance.

That’s why JCP stock could be set for a big rebound this year. Hey, it’s not like we haven’t seen this before, most recently in 2013, when Best Buy (BBY) — another mass-market chain living on borrowed time — got priced for death and yet somehow survived. Shares in the consumer electronics chain essentially tripled over the course of the calendar year before reality set in.

By no means is JCP stock a bet I would take. It’s too risky, too much of a swing-for-the-fences move.

But if you’re looking for the next “Best Buy 2013,” JCP stock could very well be it.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/jcp-stock-jcpenney-rebound/.

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