Plunging Gas Prices Find Their Way to J.C. Penney Cash Registers

NEW YORK ( TheStreet) -- J.C. Penney (JCP)  said it appears consumers are spending their savings at the gasoline pump on apparel, cosmetics, and other non-essentials.

"We have seen sales improve significantly in the first 10 days of November," said J.C. Penney Chairman and CEO Mike Ullman on an earnings call with analysts Wednesday. The comment from Ullman, who is set to hand the reigns at J.C. Penney to CEO-designee and former Home Depot (HD) executive Marvin Ellison on Aug 1., 2015, offered the first reported glimpse by a major retailer that consumers are spending their savings from cheaper gasoline prices.

Watch the video below for a look at J.C. Penney's latest quarterly results:

Ullman added that he was "pleased with business in November," echoing comments by Macy's (M) Chief Financial Officer Karen Hoguet, who said in an earnings call earlier Wednesday that the retailer "started November on a great path." Hoguet was quick to caution, though, that the "fourth quarter is not made up from one week in November."

Gas prices in the U.S. recently fell below $3 a gallon for the first time since 2010, possibly helping consumer confidence reach a seven-year high. Last June, gas prices averaged $3.70 a gallon.

Nevertheless, J.C. Penney's traffic at its brick-and-mortar locations continues to be pressured from more people buying goods online. But Wall Street, which sent J.C. Penney shares down 5% in premarket trading Thursday, may also be missing the company's healthier mix of sales that include fewer clearance items.

"Gross margin was positively impacted by a significant improvement in the company's mix (sales) and margin on clearance sales over the prior year quarter," said J.C. Penney in its earnings press release. J.C. Penney's profit margins on its private label brands such as St. John's Bay and J. Ferrar are now about in-line to those on its national brands. In total, sales of private label merchandise are approaching 50% of J.C. Penney's business.

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Ullman speculated on the earnings call that same-store sales of regular-priced merchandise rose 6% to 7% in the quarter. Reported same-store sales were virtually unchanged vs. the comparative quarter a year earlier, shy of the 2.8% Bloomberg consensus increase.

Fewer sales of profit-busting clearance items likely led J.C. Penney to reaffirm its "positive" free cash flow guidance for 2014, as well as total liquidity outlook of "approximately $2.1 billion." That liquidity is welcome news as J.C. Penney sets out to embark on pivotal investments to its online infrastructure and launches a same-day delivery service for 250 to 300 stores in 2015 to compete with Macy's in the rush to create what is being referred to in retail as the "endless aisle."

When reached via email to explain the mechanics of its same-day delivery service, a J.C. Penney spokesperson said "we will handle it" and that "it will be facilitated by using enterprise inventory and store fulfillment."  The spokesperson declined to comment on initial test markets, simply stating the company would "think big."  That would suggest J.C. Penney's first round of same-day delivery markets, similar to Macy's, will be in densely populated urban areas that would include the company's new Brooklyn, N.Y. store and remodeled Bronx, N.Y. location.  

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