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Tickers in this Article: JCP, M, JWN, WMT, TGT
In early April, mid-range department store J.C. Penney (NYSE:JCP) lowered the bar, dropping first-quarter guidance to 50 cents per share from a previous forecast of 75-80 cents per share. Well, the first-quarter numbers are in, and J.C. Penney managed to clear this much smaller hurdle by 4 cents. Certainly this is good news, but it's a bit like getting straight-A's in remedial math.

Let's have a look at the latest results to see if there is anything worth getting excited over. (To explore the controversies surrounding companies commenting on their forward-looking expectations, read Can Earnings Guidance Accurately Predict The Future?)

EPS Upside a Decent Surprise
In the period ended May 3, J.C. Penney earned $120 million or 54 cents per share. When I saw this bottom line, I breathed a sigh of relief. The situation in the retail space has been chaotic, with a slowing economy forcing many retailers to discount their merchandise. It was nice to see the company set a goal, albeit a low one, and then actually exceed it.

Management is taking a conservative approach on the earnings front, which is usually a good thing. That theory will be put to the test in the second quarter. If management is shown to be conservative in its estimates again, that could set the stage for a jump in the share price. So far, management pegged its Q2 forecast at 38 cents a share. The analyst community is currently expecting 37 cents per share. (For further reading on this topic, see Earnings: Quality Means Everything.)

Lost in the Shuffle
J.C. Penney doesn't have much that sets it apart from the rest of the department store retailers. It's niche seems to be that it doesn't have a niche. It's not high-end like Neiman Marcus or Barney's New York, and it doesn't serve the low-end consumers like discount stores Wal-Mart (NYSE:WMT) and Target (NYSE:TGT). It's trapped in the middle with the shrinking middle class.

When I compared J.C. Penney's latest same-store-sales (comps) with some of it's mid-range brethren, I wasn't overly impressed. In the period J.C. Penney's comps were down 7.4%. Meanwhile, mall-based Nordstrom (NYSE:JWN) saw comps decline of 6.5%. Macy's (NYSE:M) first quarter comps were off only 2.6%. J.C. Penney fails to break away from the competition, especially with regard to this key metric; therefore, I don't see it receiving much attention from the sell side or institutional investors. This will hurt the stock's performance.

J.C. Penney has made one move to stand out. Earlier this year, with the assistance of designer Polo Ralph Lauren (NYSE:RL), it launched its American Living brand, which includes merchandise in apparel, furniture, and a variety of other categories. The verdict is still out on whether this collection will pay off, but at least J.C. Penney took a step to differentiate itself from the other department stores.

Bottom Line
J.C. Penney's first quarter results had some good and some not so good things baked in. My eyes will be focused on Q2 and whether it meets its current forecast. This will be a big test for the company.

For related reading, check out Analyzing Retail Stocks.

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