By  on November 19, 2013

J.C. Penney Co. Inc. reports third-quarter results Tuesday, and the loss is expected to widen from the year-ago figure.

The quarterly loss was 56 cents a diluted share a year ago, but the loss is estimated to be at least $1.32 a share this year, and possibly even higher.

That’s the bad news. The good news is observers say it won’t be all gloom and doom. A few said they believe that there will be some positives, such as increasing traction with consumers from e-commerce and improved sales performance in women’s apparel.

Paul Trussell, analyst at Deutsche Bank, said he’s looking to hear more about the company’s update on its sales recovery and the trajectory of gross profit margin heading into the holiday period. He said Penney’s shares have priced in improved sales momentum. The stock is trading in the $8.70 range. According to Trussell, the big question is “what [the] merchandise margin levels have been that has driven the improvement and the strategy of balancing promotion and sales in the fourth quarter.”

In terms of gross margin, the retailer has said it has been negatively impacted in the third quarter by clearance items.

On Nov. 7, Penney’s provided an update on progress with its turnaround, stating that same-store sales rose 0.9 percent in October, a 490 basis point increase over September, and that sales on jcp.com rose 37.6 percent versus a year ago. “Conversion continues to improve in October compared to last year, reflecting favorable customer response to promotional events and improved inventory levels,” the retailer said.

Myron E. “Mike” Ullman 3rd, chief executive officer, said the company saw “significantly improved sales trends in home, men’s apparel, as well as women’s accessories.”

Deborah Weinswig, a broadlines analyst at Citigroup until she was named chief customer officer at retail analytics firm Profitect on Oct. 29, said, “The company is still showing signs of life. It’s amazing that consumers are coming back. That’s good news.”

She noted that what no one has heard yet is a strategy articulated for 2014 because so much of the activity has been focused on the turnaround. With e-commerce and the women’s category the bright spots, she expects the emphasis will be on what is the company doing for its home business, which accounts for about 20 percent of the retailer’s business. In addition, everyone will be waiting to see what the company is doing to resonate with consumers and drive traffic to the stores. “They’ve got to win people over for the holiday season,” Weinswig said.

Walter Loeb, a former analyst and now retail consultant at Loeb Associates, said, “I expect the company to say that the momentum it had in October is continuing. If so, my expectations are that Penney’s could have positive sales in the fourth quarter in the range of 8 percent to 10 percent.”

Loeb said it makes sense that the third quarter will reflect “very poor earnings” since the company is still in the process of dealing with heavy markdowns to clear out old inventory left over from decisions by the prior management team. Huge markdowns in the third quarter could mean the company won’t need to have as many in the fourth, except for seasonal merchandise, Loeb said, adding that he’s been at the stores and the home section has shown some improvement in its merchandising.

How Penney’s will do over the next few weeks will depend on how sales go during the holiday season. Loeb was at a Wal-Mart Stores Inc. meeting for investors Tuesday morning, and said the company is being “very aggressive for the holiday. They are meeting anybody’s pricing through Dec. 24, and they are starting their Black Friday preview this Friday. Wal-Mart will also start the night before on Thanksgiving at 6 p.m., not 8 p.m.

“This will be one messy Christmas. It will be very promotional. Once Wal-Mart starts, Macy’s will want to be promotional, then Penney’s and Kohl’s,” Loeb said.

For now, the main concern for vendors is Penney’s.

According to Bob Carbonell, chief credit officer at the Bernard Sands unit of Credit2B, said, “Penney’s is everybody’s biggest worry. We’ll know more after they report third-quarter earnings. We’re expecting it to be bad.”

Carbonell isn’t keen on the fact that the retailer has been doing so many promotions and clearance sales, both in store and online, due to the impact on gross margin dollars.

“They’re giving away the store to get a 0.9 percent-plus comp in October. That’s ridiculous,” the credit officer said.

Factors will also be keeping tabs on results, as well as on what sales trends may be emerging. They’ll need that information to advise vendor clients whether to ship orders for delivery next year and when.

Currently, the major factoring firms last month stopped approving orders for shipment in January. Vendors who continue to ship goods to Penney’s are doing so based on business decisions at their own risk to support the retailer.

Ullman has said that only about 5 percent of the retailer’s merchandise is factored, and likely more so among vendors in the home categories.

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