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Has JCPenney turned the corner?

Hot Stock Minute

It hasn’t been a great week in the retail sector. Macy’s (M) reported mixed results and Wal-Mart (WMT) fell short on earnings and revenue. Meanwhile, data showed retail sales rose in April, but missed economists’ expectations. However, JCPenney (JCP), which has struggled over the last several years, reported earnings that beat analysts estimates, sending shares higher today.

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Yahoo Finance Editor-in-Chief Aaron Task, Senior Columnist Michael Santoli and Breakout Host Jeff Macke spoke with Lauren Lyster about JCPenney’s better-than-expected results and what it says about the outlook for the company.

Santoli said it’s great to have a sales increase and a smaller-than-expected loss, but it’s a good idea to keep the report in perspective. The stock opened at $9.86 this morning, and Santoli said it was around that same price a few months ago. “This seems to be the level that has contained it for a while,” he said. “So, I’m not sure The Street is going to say this is a decisive turn.”

With analysts who were looking for a loss of $1.25, Macke said the company just looked good based on low expectations. “This is a triumph of mediocrity and setting expectations very very low,” he said. “If you can send your stock soaring by losing a buck-15 instead of a buck-25 per share that is just a massive victory for shareholders.” But he cautioned that it’s a terrible short based on the idea that the company is going out of business. “It doesn’t make it a long, but they’re also not going out of business,” he said.

Task agreed saying that because of expectations that JCPenney stores would close, anything short of that brings a rally. “But I don’t think we should extrapolate much further from there, that all of a sudden this is a healthy company; because it’s not,” Task said. “It’s still losing a lot of money.”

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