Did J.C. Penney Let Down Investors by Saying This One Important Thing?

Updated from 4:54 p.m. Aug. 14, 2014 with more information and analysis following the company's conference call.

NEW YORK (TheStreet) -- J.C. Penney (JCP) reported yet another net loss, but surprised investors in multiple areas such as demand for activewear and cosmetics at Sephora, as well as profit margins and cash flow guidance.

The shares were up as much as 10% in after-hours trading, but gave a good portion of those gains back as the earnings conference call went along.  What may have let investors down was gross profit margin guidance for the third-quarter and the commentary underlying its expectation.

J.C. Penney, which my firm Belus Capital Advisors rates a hold, reported second-quarter net sales of $2.8 billion compared to the $2.7 billion Wall Street consensus. Same-store sales increased 6%, generally in line with management's guidance calling for a "mid-single digit" percentage gain.  Macy's (M) announced a 4% same-store sales increase. 

A standout department for J.C. Penney was athleticwear, which CFO Ed Record characterized on the earnings call as "blowing the doors off."  The comments echoed Macy's CFO Karen Hoguet remarking that athleticwear was on "fire" in the second-quarter, aided by the introduction of new Nike (NKE) and Under Armour (UA) shop in shops at remodeled locations and the consumer trend towards athleticwear being acceptable as a daily, versatile uniform. 

Another area of strength for J.C. Penney was its home department, a business that represented 11% of annual sales in 2013.  In an emailed statement, a J.C. Penney spokesman provided that "home was up 25% in the stores this quarter", driven by "furniture, bedding, luggage, and bath."  The sales result for the home department in the second-quarter builds on the success the company had earlier in the year -- according to Bloomberg data, home sales accounted for more than half of J.C. Penney's first-quarter same-store sales increase of 7.4%.

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