J.C. Penney Outdoes Rival Macy's in the First Quarter

Updated to include CEO comments from earnings call with analysts.

NEW YORK ( The Street) -- Believe it or not, beleaguered J.C. Penney (JCP) just had a better start to the year than Macy's (M).

And to top it off, Penney raised its guidance for the year while its mall rival only maintained its guidance and noted that consumer spending remains challenging.

"Based on our results to date, including a strong Easter and Mother's Day, we feel confident in raising our 2015 expectations for sales, gross margin and SG&A," said Marvin Ellison, president and CEO-designee of J.C. Penney. Although acknowledging disappointment with its sales in April, J.C. Penney was one of the few retailers to highlight stronger sales early in May. The comments stood out amid another weak retail sales report for April, and a high-profile earnings miss from Macy's.  

For Ellison, who officially takes over from Ullman in August, to articulate the lift in guidance was a vote of confidence in the company's long-term financial targets shared at an investor day back in October. After all, no new CEO wants to start the job by missing financial goals. 

J.C. Penney said it expected same-store sales to now rise by 4% to 5% this year, compared to 3% to 5% previously. Profit margins are seen expanding 100 to 150 basis points year over year -- previously the company outlined a 50 to 100 basis point improvement.  The company is banking on several initiatives to deliver on its optimistic forecasts.  One is the launch later this month of a dedicated Sephora.com website -- currently, Sephora products found in J.C. Penney are only available in some 500 stores.  Sephora continued to be a strong business for J.C. Penney in the quarter, said execs.  Another is the rollout of 116 more Disney (DIS) children's apparel sections, which includes baby.  

J.C. Penney shares were up around 1% in after-hours trading.

The story at the more upscale Macy's in the first quarter was very different, suggesting that J.C. Penney's renewed marketing efforts and private brands are succeeding with Middle America as Ullman proclaimed. Further, the fact that J.C. Penney is less reliant on tourist spending than Macy's likely helped it outperform its rival, which partly blamed the strong dollar for its lackluster quarter. 

Macy's reported first quarter EPS of 56 cents a share, falling shy of the 62 cents share consensus, while same-store sales fell 0.1%. Although Macy's reiterated its full-year sales and earnings outlooks, CFO Karen Hoguet warned earnings would decline in the second quarter and sales growth would be slower than previously indicated.

Shares of Macy's finished Wednesday's session down 2.5%.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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