With Sales Up, Analysts Cautiously Upbeat About JCPenney

You can bet there is some serious high-fiving going on at JCPenney: The struggling retailer says its holiday sales are up 3.7% over last year. And while Christmas is critical for most retailers, keeping bells jingling was essential for the Plano, Tex.-based chain this year, as it continues to navigate its complex turnaround.

“Our highest priority over the last year has been to restore profitable sales growth,” says CEO Myron E. (Mike) Ullman, III in its announcement. “Customers clearly responded to our combination of great merchandise and compelling promotions this holiday season. We are proud of these results, and believe the work we are doing will fuel the continued growth of our business.”

In addition tothe challenges that come from redirecting the company after the near-disastrous Ron Johnson era, Penney faces additional obstacles, as shoppers of lower-end department stores still struggle to regain their financial footing.



Deutsche Bank describes the numbers as a “pleasant surprise,” and says it is a good sign that additional retailers’ numbers will also likely be “solid, if not strong. We expect that greater discretionary spending among lower-income consumers due to lower gas prices helped to boost comp sales.”

Sterne Agee was more upbeat. “While today’s results did not get us ‘over the hump’ on the company’s ability to deliver such results over a multi-year period,” writes analyst Ike Boruchow in his commentary, “Penney’s can do better than the bears are suggesting … if the company can get the customer back and show consistent traffic improvement.”

Standard & Poor's Ratings Services was a bit more cautious. “While supportive, the news on recent sales does not immediately affect the rating or outlook,” it writes commenting on Penney’s results, noting that the gains came in above its estimates. “A return to positive free cash flow would mark an important milestone in the company’s turnaround. However, we expect it will experience significant hurdles, including time,” it comments. “The ultimate outcome of JCP's turnaround plans will largely depend on its ability to regain lost sales, but also relevant factors that are outside its control such as the extent and pace of the economic recovery.”

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