A visual from J.C. Penney's Boutique+ collection.

Shares of J.C. Penney Co. Inc. slipped almost 3 percent in trading Friday as investors focused on the retailer’s drop in sales. The sellers reversed course after recognizing that the losses had been cut and the stock managed to trim those losses.

The retailer reported a 1.6 percent decline in first-quarter sales, which were below Wall Street expectations.

The net loss for the quarter was $69 million, or 22 cents a diluted share, a 55 percent improvement over last year’s loss of $144 million, or 49 cents, a year ago. This actually beat the FactSet estimate for a loss of 38 cents per share.

Total sales for the three months ending April 30 decreased to $2.81 billion from $2.85 billion a year earlier. The FactSet estimate was for sales of $2.9 billion. Comparable sales fell 0.4 percent for the first quarter.

“The first quarter was clearly challenging from a sales perspective,” said chief executive officer Marvin Ellison. “Although our business was not immune to the issues facing other retailers, I am pleased that we were able to deliver our second consecutive quarter of positive operating profit.”

Ellison said on the earnings conference call that the company experienced negative comps in March and in early April. But things turned around and there were positive comps in the last two weeks of April heading into Mother’s Day.

The top-performing divisions for the quarter included men’s, Sephora, footwear and handbags. The best regions were the Northeast and the Ohio Valley.

Cowen & Co. analyst Oliver Chen was encouraged by Penney’s earnings, but also noted that it wasn’t immune to the department store bloodbath.

“We recognize that liquidity is not an immediate concern for JCP and profitability guidance is unchanged, however valuation pressure is likely given the secular challenges facing department stores, which was evidenced by sectorwide first-quarter results appear to be accelerating,” said Chen. He was also concerned about the gross margins at Penney’s.

The company’s gross margins suffered from markdowns as Penney’s unloaded cold weather clothes that didn’t sell. Gross margins fell by 2.2 percent from 36.4 percent last year to 36.2 percent this year. Gross margin guidance was lowered to an increase of 10 to 30 basis points.

Citigroup analyst Paul LeJuez also expressed worry about the margins. “The company did a good job of managing (slashing) expenses and overall earnings per share and earnings before interest, taxes, depreciation and amortization came in a little better than expected,” he said. “But for a turnaround story like JCP, the topline and gross margin are most important.”

The retailer said it remains confident that the turnaround is on track and sees the new Sephora locations to be big sales drivers for the year. Thirty Sephora locations are scheduled to open by mid-June and there are now 546 Sephora locations in Penney’s stores.

Ellison said on the call that apparel would continue to be important to the company, but that it would shift its merchandising mix to meet customer’s wants. While apparel seems to be getting scaled back, Penney’s is putting a lot of focus on its plus-sized department called Boutique+ and its Michael Strahan line in the men’s department.

As part of the plan to reduce its dependence on apparel, Penney’s began rolling out appliances in stores and has even accelerated the rollout. The appliances are in 22 locations so far and the company said it is pleased with the results.

Penney’s is also partnering with Empire Today flooring, which will be independently run, but should translate into more window treatment sales.

The company updated its guidance for 2016. It plans on maintaining the comp store sales forecast for an increase of 3 to 4 percent. The company also said that it expects free cash flow to improve over 2015. Penney’s said it is still on track to deliver $1 billion in EBITDA for the year.

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