JCPenney: Short Squeeze of the Season

JCPenney, $JCP, might not be profitable. But it’s on the right path.

The retailer reported a smaller than-expected-loss and strong sales growth that gave credence to arguments that returning CEO Myron Ullman’s plan to bring back the old, discount-heavy JCPenney—while retaining the cleaner, “high-end” store look—is working. Prior CEO, Ron Johnson, had tried to cut back on clearance sales and other markdowns in an effort to make the brand more of an equal to, say, Macy’s, $M.

Shares climbed more than 18% Friday morning to just below $10. And users anticipated more gains as shorts were forced to cover positions. Short interest in JCPenney is 31.28% of float, according to statistics on

$JCP Decision time. Should I double down now for short squeeze to come over next few days.

— Bob Sparks (@Happyinvestor) May. 16 at 09:46 AM

''@stef540 says "$JCP can be the biggest short squeeze in end 2013 and 2014"" +46% from 10/21 lows" Mother of the big short squeeze!!!"

— Stef (@Stef540) May. 16 at 08:57 AM

JCPenney said same-store sales rose 6.2%, exceeding prior guidance. It reported net sales of $2.8 billion, beating consensus estimates by $90 million. JCPenney also said margin improvement helped it report a smaller loss than anticipated, $1.15-per-share versus the $1.25 Wall Street had expected.

“It is clear that our efforts to re-merchandise many areas of the store and revamp our messaging to the customer are taking hold,” said Ullman, in a statement. “Despite a difficult retail environment, our strong performance during the Easter holiday period and other key promotional events enables us to deliver better than anticipated sales results.”

Management guided to comparable store sales growth in the mid-single digits and significant gross margin improvement.

Crowd sentiment had called the positive earnings report earlier this week. StockTwits’ users had remained 86% bullish into earnings, despite a 5% fall in shares before the report. Many had argued that Macy’s sales miss might have come from more shoppers walking into JCPenney stores to take advantage of discounts.

$JCP M's report means nothing to JCP that we know yet.Weather may have equally hurt JCP or maybe M sales hurt by JCP increase.Time will tell

— Aaron Warwick (@aarondwarwick) May. 14 at 10:38 AM

Some traders maintained that JCPenney still wasn’t a buy, despite the recent sales traction. The company has a market cap of $2.96 billion and negative profits. Eventually, the market will want to see that JCPenney can entice shoppers without liquidating merchandise and the momentum will reverse, they argued. And they said short sellers would be willing to wait for that to happen.

$JCP For those expecting a massive squeeze. Is the market ever really that obvious? It always pays to look from both sides.

— KnowOne (@Knowone777) May. 16 at 09:14 AM

@Knowone777 shorts have already covered and are ready to reshort I think. Bulls don't give enough credit. Look out below.

— Entrada (@entrada) May. 16 at 09:15 AM

The consensus price target on the stock is $9.24. JCPenney traded above that by 10a.m. Friday.

But most StockTwits’ users expected the positive momentum and news flow to continue. Already, analysts at two banks—Deutsche Bank and Piper Jaffray—came out with bullish notes, according to the Analyst Ratings Network. Deutsche Bank raised its price target to $10-per-share from $6 and reiterated a “hold” rating. Piper Jaffray maintained its positive rating.

$JCP : Upgrades will help this stock to cross $10.11

— vik (@vik_canadian) May. 16 at 09:19 AM

More positive news would bring on more gains and more short covering, bulls argued, propelling the stock higher.

$JCP remember what short squeezes look like. $13 can come quick.. I'm sure there are plenty of stocks out there that u can refer to. No pos

— The Hog (@Fat_Hog_on_Wallstreet) May. 16 at 07:10 AM

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