This Will Be JC Penney's Biggest Challenge

In a report published Thursday, Credit Suisse analysts maintained their Underperform rating and price target of $7 on J C Penney Company Inc JCP. The company has been making progress toward meeting the sales growth estimate for the quarter.

JC Penney's total sales growth has been tracking in-line with the analysts' expectations, driven by EBITDA improvements and growth in SG&A dollars.

"The primary challenge for JCP is not further margin growth but rather growth in total sales. This will be the company's biggest challenge as it deals with its low productivity store base," the analysts said.

See Alo: JC Penney Posts Narrower-Than-Expected Q1 Loss

The analysts believe that the company's strategy to ensure capex discipline, reduction in expenses and potentially deleveraging growth "is more realistic than one solely focused on gross profit dollar growth."

In addition, comp sales increased 3.4 percent, while inventories declined, driven by accelerated e-commerce sales growth, as compared to 1Q14. Transaction size, traffic and AUR also increased, with the men's, women's apparel and home categories performing the best.

While sales growth was registered across all of the company's regions, the western and central regions posted growth above the company average. Operating margins also improved, driven by improvements in gross margin and reduction in SG&A.

The FY15 estimates have been raised to reflect JC Penney's Q1 results.