Why You Should Shop Some J.C. Penney

| About: J.C. Penney (JCP)

Compared to the previous year, J.C. Penney's (NYSE:JCP) retail store will open at 8 p.m. on Thanksgiving Day and will be open through Black Friday. Last year the company didn't open its stores until 6 a.m. This year J.C. Penney cannot afford to stay closed, as its peers are opening their retail stores at the same time. Extended hours will help the company to earn extra profit. J.C. Penney has also declared its "biggest sale ever" by offering many buy one get one free deals on specific items such as Disney toys, clothing, and video games. Additionally, last month the company opened Disney stores inside its outlets, which will be a major draw in J.C. Penney's kids department. Its strategic move to bring back promotions could be successful in driving higher revenue during the holiday sale.

In the fourth quarter, the company could generate SSS of around 10% -15%. Apart from the holiday season, one more factor which can help the company to achieve this growth rate is the absence of any negative macro factor like Sandy Storm, which affected sales of all retailers in 2012.

Kohl's (NYSE:KSS) will also open most of its stores at 8 p.m. on Thanksgiving Day and will remain open all day on Black Friday. The company is known for its strong presence online, and it is planning to offer more than 500 online deals for customers who prefer to shop online. For early risers, who can make to the stores as soon as the offers begin, Kohl's is offering huge discounts such as 10%-40% off all toys, 55%-60% off silver jewelry, 60% on ladies dresses, etc. Last year Kohl's faced a difficult time during the holiday season, due to unfavorable weather conditions and lower consumer confidence. Kohl's posted 0.1% decline in sales, so it's now working to improve its merchandising, execution strategies, and expand the number of private and exclusive brands.

Another peer of J.C. Penney, Macy's (NYSE:M), for the first time in its history, will also open most of its stores at 8 p.m. on Thanksgiving, which will be open through Black Friday evening. Compared to J.C. Penney and Kohl's, Macy's reported 6.2% increase in December 2012 sales. The company used a different strategy of training its employees for the holiday season and focusing on exclusive merchandise. This year the company is promoting a "Magic Fitting Room" through which customers can try on styles virtually and put the results online.

Sales could rebound in long-term

Looking at the improvement in sales, three hedge fund companies, Highfields Capital, Jana Partners, and Farallon Capital Management Group took position in J.C. Penney. The company observed SSS growth in October for the first time in nearly two years. The growth indicates that shoppers are slowly returning to the stores due to the reintroduction of promotions and the brands that are back on the shelves such as Nike, Levis, Carter, St. John Bay, etc.

The company also observed online sales growth of 24.5% in the third quarter year over year. It is experiencing gradual increase in the online sales, as it achieved 37.6% year-over-year online sales growth in October. I feel that bringing back the discounts/promotions and brands are smart moves to recapture customers' attention. This growth will further accelerate as end time buyers tend to order online in the holiday season.

The matter of concern for the company right now is that its losses are increasing even after showing improvement in sales sequentially. In the third quarter, it reported net loss of $489 million, whereas net loss was $123 million in year over year period. I believe these losses will reduce going forward, as in the third quarter it was offering higher discount in order to clear inventory that piled up because of its failed strategy of stopping discounts under former CEO Ron Johnson.

Assuming that J.C. Penney will continue its promotional strategy and the initiatives taken for the holiday season; these factors should accelerate revenue growth in the upcoming quarters.

Considering the measures taken by J.C. Penney for the holiday season, I anticipate that it will make up for the profits it missed last year. This gives a little hope that J.C. Penney might have something in store for the long term. Even though the company has posted positive growth in sales, its losses are a matter of concern for now. Considering this, I would recommend investors to hold this stock for now till the fourth quarter result is declared.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.