JC Penney turnaround showing signs of taking hold

JC Penney Co said November sales were encouraging and popular house brands were lifting gross profit margin, suggesting the struggling department store operator is turning a corner.

The retailer also stuck to its forecast for more than $2 billion in liquidity at fiscal year-end, soothing persistent investor fears about its financial health following a 25 per cent drop in sales in 2012.

"The turnaround at JC Penney is beginning to take hold," chief executive Myron Ullman said on a call with analysts.

But Mr Ullman also acknowledged Penney still has “a long way to go” and needs to win back more shoppers. Customer visits remain below last year’s levels, and the company is still clearing out a lot of unpopular merchandise at deep discounts.

While gross margin is improving, it was sharply lower in the fiscal third quarter, ended November 2nd, and the company posted a deeper loss for the period.

But investors appeared to focus on Penney’s turnaround comments. Penney shares were up 7 per cent to $9.32 in afternoon trading. A month ago they were plumbing 32-year lows near $6.

Penney slashed prices during the third quarter and held many sales with “doorbuster” deals, a strategy that proved wise as nervous, price-conscious shoppers continue to gravitate toward bargains.

Gross margin, a measure of profitability of merchandise, fell 3 percentage points to 29.5 per cent of sales in the quarter, though Penney said it improved steadily during the period. Margin was well below those at rivals – 39.9 per cent at Macy’s Inc’s and 37.5 per cent at Kohl’s Corp.

But Mr Ullman told analysts that more plentiful inventory of Penney’s house brands, including more sizes and styles, would help, noting such merchandise has a gross margin as much as 5 percentage points higher than other goods. For the fiscal third quarter, Penney reported a net loss of $489 million,