J.C. Penney Preannounces Solid 3Q Results

Written by Michelle Jones

J.C. Penney (JCP) shares rallied this morning after the retailer preannounced some quarterly numbers that were better than expected. The company released the numbers in conjunction with the news about a settlement in the false advertising case that had been filed against it.

Shares of J.C. Penney rose by as much as 3.17% to $8.79 per share in early trading this morning.

J.C. Penney beats in comparable sales, gross margin

The department store chain reported a 6.4% increase in third quarter comparable store sales, which just edged out the consensus estimate of a 6% increase. Gross margin was 36.6%, which was ahead of management’s guidance but slightly below the consensus of 36.9%. Earnings were also ahead of management’s outlook.

Goldman Sachs analysts Stephen Grambling, Christopher Prykull and Alison Levens said although the preannounced results beat management’s expectations, Wall Street had already baked in a slight beat because of management’s positive commentary throughout the quarter. CEO Marvin Ellison had said at Goldman Sachs’ Global Retail Conference in September that comparable store sales were tracking ahead of their expectations.

J.C. Penney targeting strong comparables in 2H

Management guided for a full year goal of a 4% to 5% increase in comparable store sales. This implies a 5% to 6% increase in the second half because of the 3.8% average increase in the first half of the year, notes the Goldman Sachs team.

J.C. Penney had guided for comparable store sales to accelerate between the second and third quarters. For the fourth quarter, however, the retail chain faces a more difficult comparison of 440 basis points. The Goldman Sachs team had already been expecting that the third quarter would run at the high end of the expected range.

Questions for J.C. Penney’s call

J.C. Penney management is set to update investors and analysts on their progress on a conference call on Friday. The Goldman Sachs team noted that the retailer’s strong comparable store sales in October and November 2014 ran counter to competitors’ comparable sales number. On Friday, they want to learn how J.C. Penney is doing this year against those strong comparisons.