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Why JCPenney Stock Rallied in the First Half of 2015

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Stock price appreciation

As of July 28, 2015, JCPenney (JCP) stock rose 30.4% to $8.20 since the beginning of 2015. Stock prices for Macy’s (M) and Kohl’s (KSS) rose 4.9% and 3.1%, respectively, over the same period. Nordstrom (JWN) stock has fallen 2.7% since the beginning of 2015. The Consumer Discretionary Select Sector SPDR Fund (XLY) rose 10.1% over the same period.

Macy’s, Kohl’s, and Nordstrom together account for ~1.9% of the portfolio holdings of XLY.

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Improved performance

The rise in JCPenney stock is influenced by the company’s improved financials and renewed expectations about its growth prospects. In fiscal 2014, JCPenney reported same-store sales growth of 4.4%, a significant improvement compared to a decline of 7.4% and 25.2% in same-store sales in fiscal 2013 and fiscal 2012, respectively.

As we saw in the previous part of this series, JCPenney reported same-store sales growth of 3.4% in 1Q15 and raised its same-store sales growth guidance for fiscal 2015. The company also raised its expectations for gross margin and EBITDA (earnings before interest, taxes, depreciation, and amortization) for fiscal 2015. Although the company’s bottom line is still in the red, it’s showing signs of improvement.

Growth strategies

JCPenney is aggressively pursuing growth in its center core products, the penetration of its private brands, and expansion of its Sephora store-within-stores beauty business. We’ve looked at these strategies in previous parts of this series. JCPenney is investing in its online business and has expanded its online product assortment. The company is also taking several initiatives to attract more consumers to its stores. For instance, JCPenney is repositioning its 850 beauty salons as Salon by InStyle in partnership with fashion magazine InStyle.

JCPenney relaunched its printed home catalog in March 2015 after a gap of five years. The company expects the catalog to bring back some of its lapsed customers.

The upcoming second quarter results will provide more clarity on the company’s future prospects.

For more analysis and updates, visit our Department Stores page.

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