Is J.C. Penney a Ten-Bagger in the Making?

For several months, market participants have decried J.C. Penney Company , claiming that the company was going under. However, after a recent update by the company, could the future be bright for this downtrodden retailer? To understand this situation, I will look at how J.C. Penney has performed recently and discuss the significance of its blockbuster news in light of the recent performance from Macy's and Dillard's .

Headline news!
According to an announcement made by the company, sales appear to be on the rise. For the month of November, comparable-store sales for the retailer rose an astonishing 10.1% compared to the same month last year. This is on top of a 0.9% increase in comparable-store sales during the month of October. In addition to an increase in store sales, the company said that its e-commerce business performed quite well, but did not disclose any particular metrics.

Mike Ullman, the company's CEO, also said "The traffic and conversion we saw both in stores and online this weekend was exciting for everyone across our organization. We know the environment will remain as competitive as ever, and we are all working to maintain our momentum through the Holiday season." This alludes to two things.

First, the Black Friday weekend likely provided a significant portion of sales. Although this is to be expected, it would have been nice to see how the company did relative to last November after removing the Black Friday weekends for both years. The underlying rationale here is that this comparison might give a better reading on the company's business without including the effect of the biggest sale of the season. This comes at a time when pretty much everything at the company is being sold for a discount anyway.

Second, while management is optimistic about J.C. Penney's recent performance (or at least trying to make investors believe they are), they are trying to relay to shareholders that they shouldn't expect the company to complete a turnaround overnight. Retailers have been hit pretty hard lately and each one is striving for growth. This suggests that competition moving forward will continue to be fierce. As such, J.C. Penney will have both good times and bad before business is back to where it once was.

What J.C. Penney is up against
Aside from working on its own operations to increase efficiency and attract customers, J.C. Penney has some pretty big players it must stand up to. During the most recent quarter, Macy's and Dillard's were the winners of big retail. Despite industry headwinds, both companies beat analyst estimates and demonstrated that their businesses, at the very least, are thriving.

Macy's, for instance, saw its earnings per share rise by 30.6% from $0.36 to $0.47. Besides experiencing great year-over-year growth, the company smashed the earnings estimate for the quarter of $0.39 per share by 20.5%. On top of beating on the bottom line, the company also saw revenue rise by 3.3% from $6.08 billion to $6.28 billion, far better than the 5.1% contraction in revenue experienced by J.C. Penney over the same time-frame.

Though it was not quite as impressive as Macy's, Dillard's also performed quite well this past quarter. Earnings per share rose by 11.9% from $1.01 to $1.13. This drastic increase was fueled in part by a 5% increase in net income, and it was also aided significantly by a 6% decrease in the company's shares outstanding. Additionally, Dillard's revenue rose by 1.4% from $1.49 billion to $1.51 billion as business has started to pick up.

Foolish takeaway
As we can see, this news from J.C. Penney is phenomenal for shareholders. Business is clearly picking up year-over-year (though I hope it's not just because of the holiday season) and that will likely improve the company's results over the next quarter or so. However, investors should remain cautiously optimistic, as it is possible that the company's clearance of inventory at rock-bottom prices may be fueling temporary growth instead of sustainable growth.

On top of this, J.C. Penney does have a lot of work to do if it wants to catch back up to rivals like Macy's and Dillard's in terms of profitability. While business is improving for the company now, both of these retailers will likely be working on ways to maintain their market share and stymie any significant turnaround efforts by J.C. Penney that they deem threatening. This does not mean that shareholders should not rejoice over the company's results. Now is as good a time as ever to do so! Rather, the Foolish investor would do well to keep a watchful eye over potential pitfalls that could hit the retailer as competition ramps up.

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The article Is J.C. Penney a Ten-Bagger in the Making? originally appeared on Fool.com.

Daniel Jones has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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