If there's one positive thing investors can take from J.C. Penney's (NYSE: JCP) performance over the past few years, it's the lesson that you shouldn't always take what a company's executives say at face value.

Of all the retailers that have survived yet struggled since the financial crisis, few have turned in as poor of a record as J.C. Penney. There are any number of metrics one can cite to prove this point, but among the best is the department store chain's same-store sales numbers, which measure how much that sales at a retailer's existing locations have climbed or dropped on a year-over-year basis.

As you can see in the chart below, J.C. Penney's same-store sales have appeared downright apocalyptic at certain points over the past few years. In the fourth quarter of 2012, for instance, they fell by a staggering 31.7%. It was, to put it bluntly, one of the worst quarterly performances in the history of retail in America.


Yet you never would have known this if you merely listened to what J.C. Penney's then-CEO Ron Johnson noted in prepared remarks in that quarter's earnings release:

Sales and customer traffic were below our expectations in 2012, but as we execute our ambitious transformation plan, we are pleased with the great strides we made to improve JC Penney's cost structure, technology platforms and the overall customer experience. We have accomplished so much in the last twelve months. We believe the bold actions taken in 2012 will materially improve the Company's long-term growth and profitability.

Johnson continued this tack on the quarterly conference call. As opposed to speaking candidly about J.C. Penney's troubles, he spent the majority of his time lauding its "amazing leadership," the "dramatically improved ... look and feel" of its stores, and the "systems improvements" that, according to Johnson, were already "materially helping" his and his team's understanding of the business.

To be fair, it's not as if Johnson completely avoided the fact that the company's sales had fallen out of bed over the preceding three months. However, the cursory way in which he acknowledged it offers only the faintest clue about the depth of J.C. Penney's despair at the time. It wasn't until Johnson handed the call over to the company's chief financial officer, Ken Hannah, that investors got a more realistic assessment of J.C. Penney's downward spiral.

As Hannah noted:

Sales for the quarter came in at $3.884 billion, compared to $5.425 billion in the same quarter a year ago and $2.927 million last quarter. That results in a comparable-store sales decline of 31.7%, excluding the benefit of this year's 53rd week or down 28.4% if included.

Traffic for the quarter was down 17% year over year. Q4 was traditionally been our most promotional quarter, one in which customers are shopping for others and seeking value and as Ron said, it's very important for us to compete and connect with our customer. Our store conversion was down 10% to last year and consistent with previous quarters. For the year, sales were $12.985 billion with comparable store sales down 25.2%. Traffic was down 13% for the year and conversion down 9%.

This isn't to say that Johnson was intentionally lying by omitting a substantive discussion of J.C. Penney's rapid decline under his watch. He was, after all, the company's CEO. As such, he owed a duty to the company to cast it in the best light possible, lest his negative comments spark a run on its stock. It's difficult to say that you or I wouldn't act in precisely the same way that Johnson did given the same set of circumstances.

But it's nevertheless for this reason that investors should always be wary of pronouncements from a publicly traded company's executives. They will always tilt the evidence in favor of a bullish perspective. The job of tempering their opinion accordingly rests on your own sound judgment and analysis. Research is a fundamental part of investing, and that research needs to delve far beyond the formulated opinions of a company's executives.

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John Maxfield has no position in any stocks mentioned. 

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