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Penney's 3Q results to offer clues on recovery

Anne d'Innocenzio, AP Retail Writer

NEW YORK (AP) -- J.C. Penney Co. is expected to report third-quarter earnings results before the market opens Wednesday that will show it's starting to turn around sales declines.

But investors will want to know whether that improvement will continue through the critical holiday shopping season and beyond.

WHAT TO WATCH FOR: J.C. Penney is trying to recover from a botched transformation plan spearheaded by former CEO Ron Johnson that led to disastrous results. The board rehired Mike Ullman and ousted Johnson in April, 17 months into Johnson's tenure. Ullman had been CEO of the retailer from 2004 to late 2011.

Under Ullman, Penney is bringing back more frequent sales and basic merchandise eliminated by Johnson who was trying to woo more affluent, younger shoppers. Business is showing signs of stabilizing, but profit margins have been hammered as Penney has had to heavily discount an oversupply of merchandise from the first half of the year.

Investors will be studying how much profit margins were hurt and will be looking for clues on how quickly Penney can turn business around. They'll also want to know how much cash Penney has burned in the latest quarter.

Penney said earlier this month that sales at stores open at least a year edged up 0.9 percent in October, the last month of the company's fiscal third quarter. That's the first increase since December 2011. This figure is a key indicator of a retailer's health, because it measures growth at ongoing locations by excluding results from stores recently opened or closed. In September, the figure fell 4 percent, and in August, the same measure dropped 9.8 percent.

Analysts expect that yardstick to be down 3.3 percent for the third quarter, an improvement from the 11.9 percent drop in the second quarter.

Analysts will also be looking for more details on Penney's strategy for the holiday season, which is expected to be fiercely competitive. Many stores are trying to be the first to grab shoppers' dollars during the traditional kickoff to the season by opening on Thanksgiving.

Penney is following suit by opening its doors at 8 p.m. on Thanksgiving. Last year, it was one of the laggards, opening its doors at 6 a.m. on the Friday after Thanksgiving.

It's also stepping up its holiday bargains compared with a year ago.

Penney is facing an uphill climb. It amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2, the first year of the failed transformation strategy. Sales declines and losses continued into the second quarter.

Penney's shares are hovering around $9, down 54 percent this year. Shares have lost 79 percent of their value since February of 2012, when investor enthusiasm was high on Johnson's transformation.

WHY IT MATTERS: Penney is a major department store chain and sells a variety of discretionary items at moderate prices. That makes it a barometer of middle-income shoppers' willingness to spend.

WHAT'S EXPECTED: Analysts expect a loss of $1.70 per share on revenue of $2.81 billion.

LAST YEAR'S QUARTER: The company reported a loss of 93 cents per share on revenue of $2.93 billion.