Photograph by Victor J. Blue — Bloomberg/Getty Images
By Phil Wahba
January 6, 2015

Is J.C. Penney’s (JCP) turnaround back on track? Its holiday sales performance would suggest so.

The department store chain reported comparable sales rose 3.7% in November and December, news that sent the retailer’s shares up 20% to $7.81 in after-hours trading on Tuesday. Penney now expects comparable sales to be at the high end of the 2-4% growth range it gave in October for the full quarter, which includes January.

The strong holiday numbers followed a second-quarter report in November that said comparable sales had been unchanged for the three months ended in late October. That weak performance had stoked fears that Penney’s comeback, which saw sales begin to recover from its disastrous attempts in 2012 to modernize itself, had stalled. Penney’s shares have been slumping since October, when Penney gave a long term sales forecast that showed what a slog it has ahead of it.

In the fall, many retailers reported poor apparel sales, a big category for Penney. But by the time the holiday season came around, gas prices were at multi-year highs, giving Penney’s budget-conscious shoppers a boost, the stock market reached all-time highs, and consumer confidence rose. And Penney left little to chance—it opened stores on Thanksgiving at 5 p.m., an hour before Macy’s (M) and Kohl’s (KSS) did.

Other Penney-specific things worked in its favor. Compared to last year, when it was still undoing the damage wrought by former CEO Ron Johnson, Penney this holiday season has a much wider assortment within its own brands, many of which Johnson had jettisoned but which brought in a regular flow of customers. It also has cleared out much of the merchandise Johnson brought in but which flopped, forcing Penney last year to slash prices and eating into sales and gross margins.

“Our highest priority over the last year has been to restore profitable sales growth at JCPenney. This holiday season was instrumental in that effort,” said CEO Mike Ullman in a statement.

The company did not, however, provide a forecast for its gross margin, so it remains to be seen whether the sharp industry-wide discounting took a toll on its profitability. That will be clear when Penney reports full fourth-quarter results sometime in February. What’s more, while the shares did soar, they remain well below the $11 level of just a few months ago. And about one third of Penney shares are held short by investors betting they will fall, making them volatile.

Still, the results show there is life yet in Penney’s turnaround.

 

 

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