J.C. Penney: 'Less Bad' Ain't Good Enough

NEW YORK (TheStreet) -- Are investors looking at J.C. Penney (JCP) through rose-colored glasses?

They must be because shares were up strongly in post-market trading Wednesday after the retailer's fourth-quarter earnings announcement, and they are rallying Thursday, up nearly 20%. The market liked what it saw in the company's lower-than-expected loss for the quarter and does not seem concerned revenue was slightly worse than expected. (The bottom-line figure includes a $270 million income tax benefit, which in my view should not be included.)

It is true that gross margins improved to 28.4%, 460 basis points better than the 23.8% reported for the same quarter last year. Same-store sales were up 2%, while online sales grew 26.3%. The company also generated positive free-cash for the quarter, to the tune of $246 million, by my calculation.

Investors looking for something, anything, in terms of signs of life from the company were happy. Could it have been worse? Certainly. However, the bar has been set so low for J.C. Penney that just finding a pulse is considered a step in the right direction.

The fourth quarter is make or break for retailers, when the bulk of revenue -- and in many cases profits -- are generated during the fiscal year. For J.C. Penney, it was much closer to break-even this year than last year.

A small sign of hope? Yes, but nothing to get overly excited about. Turn a profit, not one that is subsidized via a tax benefit, and then perhaps we can start talking about J.C. Penney's turnaround.

In terms of same store-sales, they dropped 32% for last year's fourth quarter, a horrific figure, and one that set the bar exceedingly low for this year. Same-store sales growth of 2%, coming off a -32% year, again, is nothing to be excited about.

It shows things are "less bad" for the retailer, but that's not good enough at this point.

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