J.C. Penney Shares Pop 14% on Third-Quarter Results -- Was the Quarter That Strong?

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What happened

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Shares of J.C. Penney Company, Inc. (NYSE: JCP), a well-known department store retailer selling merchandise, clothing, and services, are soaring 14% as of 10:40 a.m. EST Friday, after the company trounced Wall Street estimates during the third quarter.

So what

Starting from the top, J.C. Penney generated an adjusted earnings loss of $0.33 per share on revenue of $2.81 billion. That was far better than analysts' estimates calling for a $0.43 per share loss on revenue of $2.77 billion. Arguably the best piece of data from J.C. Penney's third quarter was its comparable sales surprise. Comparable sales increased 1.7% during the third quarter, and while that might not sound like a victory, it's twice what management had predicted only one month ago and better than analysts' estimates of 0.7%.

"During the third quarter, we took aggressive actions to clear slow-moving inventory, primarily allowing for an improved apparel assortment heading in to the Holiday season," said Chairman and Chief Executive Officer Marvin R. Ellison, in a press release. "While these actions had a negative short-term impact on profitability in the third quarter, we firmly believe it was the right decision for the Company as we transition into the fourth quarter and fiscal 2018."

Now what

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The 14% pop in stock price appears to be a positive development to many investors, but that's not the whole story. Let's remember that J.C. Penney pulled back guidance a little over a month ago, which sent its share price sharply lower at the time, and some argued the guidance was even worse than it appeared. And while the company topped estimates, it's still reporting losses -- it's just that the losses aren't as bad as feared. Despite Friday's 14% increase the company has still shed more than 60% of its value in the past 12 months. Sure, the 1.7% gain in comparable store sales is a step forward, but be wary before jumping on board because there is a long road ahead before J.C. Penney proves it's a strong investment option.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.