J.C. Penney Co. (JCP) shares surged the most in more than 10 months after sales growth picked up over the holidays, raising optimism that the department-store chain is back on the comeback trail.
The shares climbed 20 percent to $7.89 today in New York, the biggest gain since Feb. 27. The stock had been slumping recent months, hurt by concern that its turnaround was faltering. Before today, it was down 41 percent since reaching a 2014 closing high on Aug. 27.
U.S. consumers have been looking for bargains and that plays to the company’s strength, said Mary Ross Gilbert, an analyst at Imperial Capital LLC in Los Angeles. J.C. Penney’s same-store sales rose 3.7 percent during the nine-week holiday season. The Plano, Texas-based company also expects growth this quarter to be at the upper end of a predicted range of 2 percent to 4 percent.
“They had the product and they had the promotions to meet the consumer’s demands,” said Gilbert, who still has the equivalent of a sell rating on the shares. “The promotional environment we were experiencing across the board at retail was the the most intensified I’ve ever seen. They’ve always had a value customer.”
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J.C. Penney has been working for more than 1 1/2 years to restore consistent sales growth after a failed reinvention that sent its revenue tumbling to the lowest levels in decades. Chief Executive Officer Mike Ullman has stabilized the company since taking back the reins in April 2013, leading J.C. Penney to sales gains in the first two quarters of last year. Marvin Ellison, a former executive at Home Depot Inc. (HD), is slated to succeed Ullman this year.
Popular Promotions
To bring shoppers back, Ullman has been working to undo many of the changes made by his predecessor: former Apple Inc. (AAPL) executive Ron Johnson. Ullman reinstated promotions and brought back private-label brands that were popular among its shoppers.
The holiday sales gain is an improvement from the third quarter, which saw same-store sales little changed from the year before, missing analysts’ estimates for a 2.8 percent increase.
The company’s sales results will be aided this month by easy comparisons from a year ago, when warm weather hurt purchases of winter goods, said Michael Binetti, an analyst for UBS AG in New York. J.C. Penney’s results also bode well for fellow department-store chains Kohl’s Corp., Macy’s Inc. (M) and Nordstrom Inc., he said in a note to clients.
J.C. Penney is also working to update accessories departments and attracting traffic and younger customers with its Sephora USA Inc. shop-in-shops, Gilbert said.
“Their center core strategy is a very good strategy that can help them regain share that they lost,” Gilbert said. “They’re focusing on categories such as shoes, handbags and accessories — some really key categories that are really important to the consumer.”
Date: January 8, 2015