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TheStreet Open House

Don't Buy JCP's False Hope, Misleading Optimism

Stocks in this article: JCP BBY

NEW YORK ( TheStreet) -- It's stories such as J. C. Penney Touts Silver Lining in Poor Results that reaffirm what a great idea it was for TheStreet to buy TheDeal last year.

Stories out of The Deal Newsroom tend to not mince words. Great information that cuts through the crap and tells it like it is.

Consider The Deal's take on J. C. Penney's (JCP - Get Report) quarterly results and subsequent misguided stock price pop:

Shareholders' newfound optimism was based on company guidance for a brighter fourth quarter, as it said comparable store sales and gross margin were "expected to improve sequentially and year-over-year."

Yet third quarter numbers ... show that J.C. Penney is still on its way down, with comparable store sales declining 4.8%, revenues falling about 5.1% to $2.78 billion from $2.93 billion for the same period a year earlier, and a net loss of nearly $490 million.

The silver lining, according to J.C. Penney, is that comparable store sales increased 0.9% in Oct., a reversal of monthly comparable store sales declines since late 2011.

But trying to boost revenue through inventory clearance and promotional events to attain that all-important comparable store sales increases, also help drive down gross margins and increase losses. The company's gross margin dropped to 29.5% of sales in the third quarter, compared to 32.5% for the same period a year earlier.

You're not going to find a better analysis. Somehow, unless they're merely misleading investors with their "optimism," this is all lost on JCP management. They're in dire straits no matter what they say. Like brothers in arms, JCP and almost-as-inept peer Best Buy (BBY - Get Report) ought to prepare current and prospective shareholders for a walk of shame, not the walk of life.

The only thing that gives BBY an edge in a battle of perpetual losers is that it has better product to sell than JCP. That's it. Other than this, there's no discernible difference between the two lost companies.

I'll never understand why Wall Street chases stocks like this. Unless you're a nimble day trader who has got the action, got the motion and doesn't know the names of the pieces of paper he buys, sells, flips and shorts, you have no business being in JCP. None. Management's ability to wax with even the slightest optimism after such a God-awful quarter illustrates just how useless the SEC's regulatory apparatus is.

We saw a similar flavor of tripe served back when the artist formerly known as RIM co-CEO Jim Balsillie effectively duped people into buying what are now dead Blackberry (BBRY) shares on just as toxic rhetoric.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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