J.C. Penney wins (some) hearts on Wall Street
Shares of J.C. Penney (JCP) have rocketed more than 20 percent since the start of the year after the beleaguered retailer reported holiday sales that exceeded Wall Street expectations. Those results are heightening confidence that CEO Mike Ullman's turnaround is gaining momentum.
Still, many on Wall Street remain skeptical, claiming the future for the 113-year-old chain in an increasingly competitive retail environment remains unclear.
"It's headed in a better direction," said Efraim Levy, an analyst with S&P Capital IQ, who rates the shares as "neutral." "They kind of made back some of their missteps ... You can call it progress."
Indeed, while same-store sales, a key retail metric measuring performance at stores opened at least a year, rose 3.7 percent during November and December, the company isn't out of the woods. It has lost $2.5 billion over the past three years and reported its first quarterly sales gain since 2011 in May.
Moreover, J.C. Penney reported disappointing third-quarter results, which made some on Wall Street question whether Ullman's turnaround was faltering. At least a dozen retail chains have reported better-than-expected holiday sales.
But the holiday results impressed Nomura Securities analyst Robert Drbul, who had expected flat comparable sales. "Given this sales result, we are also encouraged by the potential implications for other department stores and value-oriented retailers," he wrote in a note to clients.
Ullman was hired by the Plano, Texas-based company in 2013 after CEO Ron Johnson was fired for alienating both shoppers and investors with a series of unpopular moves, including abolishing coupons and shelving popular store brands. Johnson, who had previously led Apple's (AAPL) retail operations, was brought on by Penney to replace Ullman. Marvin Ellison, a top executive at Home Depot (HD), is due to replace Ullman later this year.
"Mike Ullman was well-regarded by the (Penney) associates," said BTIG analyst William Frohnhoefer, who rates the retailer as a "neutral." "He understands the retail business fairly well."
Ullman has stabilized Penney by undoing many missteps, but the company still needs to convince investors that it can grow on a sustainable basis. Separately, the chain announced plans to close 39 underperforming leased stores (and one company-owned location), laying off more than 2,200 workers. According to UBS, only 55 percent of Penney's stores are in "A" or "B" locations.
Frohnhoefer told CBS MoneyWatch the closures were a "right-sizing that needed to needed to be done several years ago ... They may need to close more stores in the future if they have underperforming locations." Penney has closed 100 stores since 2011, according to UBS.
Penney isn't the only big retailer to dial back the number of stores. Macy's (M) also announced plans this week to shutter 14 locations, and analysts expect more closures because many chains overbuilt for years.