Retail

JC Penney Short Interest Jumps During Holidays

Douglas A. McIntyre

Published: December 10, 2015 6:51 am

Last Updated: January 13, 2020 4:16 pm

The short interest in J.C. Penney Co. Inc. (NYSE: JCP) jumped 10.9% in the period that ended November 30 to 100.4 million shares. That makes it the 11th most shorted stock traded on the New York Stock Exchange. Some number of investors don’t believe J.C. Penney can post good holiday results.

There is reason for the concern. J.C. Penney still occupies a spot in the second tier of retailers, with revenue overshadowed by that of Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT) and Amazon.com Inc. (NASDAQ: AMZN).

J.C. Penney revenue and same-store sales have posted a modest recovery from a disastrous drop three years ago, when new management changed the company’s marketing campaign, store layout and mix of products. However, the retailer may never get back to the revenue it had prior to the debacle. Its share performance over the past six months reflects that worry. Shares are off 12% during that period.

Additionally, J.C. Penney faces competition from desperate retailers like Sears Holdings Corp. (NASDAQ: SHLD), which owns Sears and Kmart, for which the holidays represent their last chance at viability, and from Macy’s Inc. (NYSE: M), which has a stronger position but is closing stores to offset revenue trouble. At the top of the market in sales volume, Wal-Mart and Target continue to fight to grow at all in the U.S. market. All these retailers will offer extreme discounts to hold or improve their market shares.

And hanging above the heads of these companies, Amazon’s sales are expected to rise as much as 25% in this quarter to $35 billion. J.C. Penney’s e-commerce sales are small, and its online presence is dwarfed by Amazon’s. It is not alone in this situation, but that does not make its e-commerce challenge any less important.

If the J.C. Penney turnaround does not continue, and actually strengthen, shareholders will abandon the stock and short sellers will have been proven right.