Is It Turnaround Time For J.C. Penney?

JCPenney (JCP) CEO Mike Ullman’s progress indications of the retailer’s recent turnaround at least makes us believe the company will not go out of business. Not typically bad news for those who invest in money-losing or dying department-store chains. Shares of JCPenney closed lower -3.81% to $8.59 on Wednesday.

TheStreet Ratings team reiterated yesterday JCPenney as a "sell" with a ratings score of D.

"We rate JC Penney Co. a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."

Shares had surged 16.25 percent on Monday. JCPenney reported first quarter same store sales which jumped to 6.2 percent, exceeding estimates; second consecutive quarter of growth.

The retailer disclosed more detail of its new $2.35 billion bank loan also on Monday. A five year term was announced and the lead banks are Wells Fargo, Bank of America, J.P Morgan Chase, Barclays and Goldman Sachs. JCPenney’s existing loan balance is $650 million.

JCPenney’s “go-forward phase” into second quarter aims for long-term profitable growth.

The company announced it will continue its strategic efforts into the second quarter to re-merchandise many of its store areas, revamp consumer messaging and drive key promotional events which contributed to sales results.

Weak results may be the real blame for retail.

According to the U.S. Commerce Department, April retail sales were up by only 0.1 percent compared with the previous month. There are still strong indicators that consumer consumption just isn’t fleshing out quite yet. Much was to blame on the bad weather. However, I see a trend across all retailers as also harbouring around real weakness.

JCPenney isn’t by far a healthy company but they are not the only retailer missing its numbers.

Big retailers such as Amazon (AMZN) and Wal-Mart (WMT) are also falling short. Pressures on discounting at the store level and dealing with retail store closures are present. GDP expectations at the most, conservatively should be 2.6 percent.

There still is hope.

Fitch Ratings tightened 36% on Tuesday as JCPenney’s recovery gains traction, assigning a positive outlook after first-quarter results. The Positive Outlook reflected J.C. Penney's recently improved liquidity profile which followed a number of actions over recent months.

CEO Mike Ullman is looking on the bright side. Does that mean you should to?

After great first quarter results, improvements, a Positive Outlook and increased credit line, JCPenney still may be a hard sell for investors. It would be safe and sane to remain cautious about the stock as long term for now.