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JCPenney $JCP has been the poster child of the retail desolation on the American retail wasteland. Friday JCP reported  Q3 earnings with a loss much less than guidance. Revenue was also ahead of guidance. Yes the are still making losses and lower revenue is lower but is there hope in those malls? $JCP has been aggressively clearing it's inventory and is seeing sequential comp sales improvement actions giving investors hope.


Earnings: Non-GAAP loss of $(0.33) per share ahead of prior guidance of $(0.45)-(0.40). Revenue fell 1.8% year/year to $2.81 bln  also better than market expectations.

Reaction: JC Penney Company Inc NYSE: JCP 3.14USD0.38 (13.56%)


Earnings Highlights:

Home, Sephora, Footwear and Handbags, Women's Specialty and Salon were the company's top performing divisions during the quarter.

The Gulf Coast and Midwest were the best performing regions of the country.

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$JCP saw sequential comp sales improvement in nearly all merchandise categories in OctQ, relative to JulQ. 

JC Penney in a difficult space, clearly left behind against online competitors like Amazon $AMZN, as have all traditional bricks and mortar retailers other than the box discounters for the most part. Back in February this year $JCP said it would close two distribution facilities and approximately 130-140 stores over the next few months. This was a positive step in where it was and an attempt to stop the bleeding by aligning the company's brick-and-mortar presence with its omnichannel network. Captial was then able to applied in locations that offer the greatest revenue potential. JCP's strategy is that its remaining large store base of it's best revenue producing locations gives it a competitive advantage for personalized beauty offerings, a broad array of special sizes, affordable private brands and quality home goods and services. In other words segments that have an advantage over online sales because of their personal interaction.

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With regard to it's online segment, as belated as it maybe, $JCP said back in its February transformation stement that it was seeing double digit growth of jcpenney.com and how leveraging its brick-and-mortar locations is enabling JCP to offset the last-mile delivery cost. This is significant as we see how e-commerce companies are now experiencing dramatically increasing fulfillment costs. In a changing retial environment this has merit if the consumer buys into it, in 2016 approximately 75% of all online orders touched a physical store. First and formeost consumers have to want to buy the goods and services that JC Penney provides. That is the other half of the equation.

Clearly with these kind of losses $JCP is still  under the gun and you don't close 140 stores if its rosey. The price reflects that and are these quartely results a step in the right direction or illustrative of a bridge too far to come back from? but the OctQ results were a nice reprieve. The positve growth in comps at +1.7% ahead of the holidays shows some traction, even if allow for the distortion from inventory discounting. One to watch if they can right the ship over ongoing sales comps and brand improvement. Early days as they say.

Source: JC Penney, AlphaStreet

From The Traders Community Research Department

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