For a retailer that many people just three years ago were saying was doomed to disappear, J.C. Penney (JCP) has been putting in best-in-class numbers among the department store chains.
The mid-market retailer on Friday said comparable sales rose 6.4% in the quarter ended Oct. 31, which was better than the 5.6% growth Wall Street expected, according to Consensus Metrix. More notably, Penney easily beat the awful performance of its long-time and sometimes bitter rival, Macy’s (M), which earlier this week stunned the retail world with a sharp sales decline last quarter and the forecast of more trouble during this holiday season quarter. Among other factors, Macy’s blamed the warm weather it said led to shoppers postponing winter clothing purchase, an excuse that doesn’t wash given overlap between the two chains’ fleet of stores.
Penney also bested Kohl’s (KSS) and the higher end Nordstrom (JWN), which each reported modest comparable sales growth. (In Nordstrom’s case, it was well below analyst expectations, and shares fell 20%.)
So, what has Penney been doing right?
Before we fall over ourselves about its performance, it’s worth remembering that Penney is on the comeback trail, trying to claw its way back from a disastrous attempt by ex-CEO Ron Johnson to take the retailer further upmarket, a massive misstep that shaved 30% off the store’s revenues over two years before the bleeding stopped. For all these strong quarterly numbers, Penney is on track for revenue of $12.6 billion this current fiscal year—still $4 billion away from where it was before the Johnson experiment.
Penney CEO Marvin Ellison took the reins in August, and along with his predecessor, Mike Ullman, he’s worked to bring back the popular store brands Penney shoppers loved, notably St. John’s Bay. But Ellison is also in the process of giving the retailer’s tech systems and e-commerce a massive overhaul after they were gutted during the Johnson regime. That includes unsexy, but essential, things like better demand forecasting analytics and inventory management, better mobile apps, and equipping stores to ship online orders to speed up the process. Ellison also recently cut hundreds of jobs at Penney’s headquarters in Plano, Texas to trim costs.
“While there is significant work to do to improve our company, the J.C. Penney team remains determined to regain our status as a world-class retailer,” Ellison said in a statement.
And he is right on that front: Despite the big sales gains, Penney’s gross profit margin rose a meager 0.7%, a smaller improvement than in recent quarters.
For a company that is still far from profitable—Penney has lost $442 million in the first nine months of the current fiscal year, which is down from $712 million a year earlier but still a big loss—any delay in getting back into the black will frighten investors. And indeed, despite a strong quarter, Penney’s shares slipped 5% in premarket trading.
