JCP shares rally after earnings, revenue beat

J.C. Penney shares rose more than 10 percent on Thursday after the retailer posted better-than-expected quarterly profit and revenue, boosted by a 5 percent increase in net sales compared with a year ago.

The company posted a second-quarter loss, excluding items, of 75 cents per share, compared with a loss of $2.16 a share in the year-earlier period. Revenue jumped to $2.80 billion from roughly $2.66 billion.

Analysts had expected the company to report a loss of 93 cents a share on nearly $2.79 billion in revenue, according to a consensus estimate from Thomson Reuters.

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J.C. Penney said same-store sales rose 6 percent during the quarter, versus projections for a rise of 5.8 percent, according to Consensus Metrix.

The stronger-than-expected results have some convinced that J.C. Penney's turnaround is finally taking hold.

"This stock has huge potential. I think it's the best turnaround story I've ever seen for a long time," said Mark Hake of Hake Capital Management. "It's [the] best way to make money in the retail sector right now."

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"Sales are going to get tougher and margins are going to get tougher going forward. … They're going to have to grow a lot to grow into the valuation where the shares are now trading," added Rick Snyder of Maxim Group.

The embattled retailer has struggled to find its way back to profitability since CEO Mike Ullman returned to the company in April 2013, after being replaced by Ron Johnson in 2011.

"As we approach the completion of our turnaround, we are focused on re-establishing J.C. Penney as the premier shopping destination for the moderate consumer," Ullman said in a statement Thursday. "We expect to continue driving profitable sales this back-to-school season."

The retailer said its gross margin rose to 36 percent from 29.6 percent a year ago and free cash flow increased to $76 million, a $1.2 billion improvement.

"It's going to take a combination of sales and margin to get this up. And I still can't get a reasonable valuation with even these assumptions in the model until about 2018," Snyder said.

Looking forward, J.C. Penney said it expects third-quarter comparable store sales to increase mid-single digits, while gross margin is forecast to be in line with the second quarter.

The company said women's and men's apparel and accessories, home and fine jewelry were its top performing sectors in the quarter.

J.C. Penney is planning to close 33 of its stores, but is also making plans to open others. The company will open its first location in Brooklyn, New York, later this month and it also teamed up with makeup and perfume maker Sephora, a venture it said performed strongly during the quarter.

—By CNBC's Karma Allen. CNBC's Michelle Fox contributed to this report.