Good news for J.C. Penney shares earlier the week set investors up for a disappointment Friday.
The department store capped off a brutal week for retail earnings. Penney's stock fell nearly 15 percent in early trading, despite posting a third-quarter loss of 45 cents a share, narrower than Wall Street estimates and a 27 percent improvement compared with the prior-year period.
But the retailer had seen gains earlier in the week, after it pre-announced same-store sales results that outperformed competitors. Penney's showed it wasn't immune from a broad retail sell-off, with the S&P Retail exchange dipping roughly 3 percent Friday, led lower by a 18 percent decline from high-end department store Nordstrom.
Citi analyst Paul Lejuez attributed Penney's weakness to "generally high expectations" for the stock heading into its announcement, and concerns about fourth-quarter performance. The decline came a series of disappointing earnings results sent shock waves through the investment community, which had already been bracing for a lackluster holiday season.
But while Penney's still has a long way to go in reaching its goal of $1.2 billion in EBITDA by 2017, it continued to show marked progress in its turnaround efforts during the quarter, despite broad under performance by its competitors. Comparable sales continued their upward trend, increasing 6.4 percent. Meanwhile, the company's gross margin once again ticked higher, as it increased the level of private-brand products in its stores and several of its merchandising initiatives took hold.
To be sure, Penney's is working off a significantly lower base than its competitive set, after a failed turnaround attempt eroded its market share. But it's nonetheless succeeding in recapturing a piece of consumers' wallets.
"Growth at both total and same-store level has improved significantly since the last quarter, with consequent uplifts to the profit line," said Hakon Helgesen, an analyst at retail research firm Conlumino. "While J.C. Penney remains loss making, the scale of that loss is much less severe than it used to be, and continues to move in the right direction."