J.C. Penney shares jumped 5 percent in extended hours trading Thursday after the retailer posted better-than-expected earnings. The company reported revenue at $2.8 billion, up from $2.66 billion a year ago, and a second-quarter loss of $0.75 cents per share.
J.C. Penney has been trying to revamp its image after the company's stock lost 51 percent of its value last year alone.
"As we approach the completion of our turnaround, we are focused on reestablishing J.C. Penney as the premier shopping destination for the moderate consumer," CEO Mark Ullman said in a statement adding, "we expect to continue driving profitable sales this back-to-school season." Thursday's results mark the troubled retailer's third-consecutive quarter of same-store sales growth, after nine straight quarters of declines.
So, does J.C. Penney have it in the bag?
"We like J.C. Penney as a short-term trade here," said Alex Fuhrman of Craig-Hallum Capital Group. "We're starting to see inventory productivity normalize as the last of the Ron Johnson era goods have been purged. And I think just maintaining the progress you saw in Q1 on that metric, you could be looking at comps as much as high single digits in the second quarter, and maybe even more than that in the back half of the year."
As far as a long-term investment, Fuhrman warned the company's recovery could begin to run out of steam in the next year. "More importantly, when you think about the gross margins, which really need to recover for J.C. Penney to get back to profitability," he added, "it is a substantially lower-margin business given shipping and handling. And as that business scales for years to come, you are looking at an incremental 10 to 15 basis point every year for the foreseeable future."
Richard Ross of Auerbach Grayson agreed with Fuhrman that J.C. Penney could be a solid short-term investment. "I like this as a late summer trade."
Ross pointed out on a chart dating back to November 2011 that the stock has been in a well-defined downtrend and remained below its 50-week moving average, but has now rallied above both and is testing the neckline of a head-and-shoulders base. "I think we could get up to $12 to $13 per share," he said.