Dive Brief:

• J.C. Penney reported second quarter net sales fell 9.2% year over year to $2.5 billion, with comparable sales falling 9%, according to a press release. (Excluding Penney's exit from appliances and in-store furniture, comps were down 6%.)
• Operating income turned positive, to $17 million, as the department store retailer reduced its selling costs by some $246 million.
• Penney's bottom line improved overall, with the retailer narrowing its net loss by more than 50% from the year-ago period to $48 million.

Dive Insight:

Despite a loss for the quarter and shrunken sales, Penney CEO Jill Soltau noted in a statement that the results represented "the progress we are making against our plan."

Investors noticed the progress as well. The company's profits exceeded analyst expectations, sending Penney share prices up 15.8% in premarket trading, according to MarketWatch. However, sales fell $130 million short of the FactSet consensus cited by MarketWatch.

Helping the profit increases were Penney's reduced selling costs. The company credited improvements in its costs-to-sales ratios to lower permanent markdowns, lower shrink rates, improvements in both store and online selling margins, and the exit from the major appliance and furniture categories.

But Soltau noted that "we still have work to do on our topline." To that end, she said she and her team are "laser-focused" on two paths: "building a framework to reestablish the practices needed to strengthen the day to day operations of our business" while also "developing differentiating, transformational initiatives."

Moody's Vice President Christina Boni said in emailed comments that Penney "continues to work to reconnect with its customer" and rebuild its assortment, with inventories down 12.5%. "The focus on profitable sales proved beneficial as lower markdowns, improved shrink and its major appliance and in-store furniture exit all led to significantly improved gross margins," Boni said. 

Not all analysts saw light in Penney's earnings, though. "JC Penney has served up another slice of gloom with an incredibly bad set of sales numbers," GlobalData Retail's Neil Saunders said in emailed comments. "That revenues should shrink by almost a tenth over the course of a year is incredible and shows how far the company has fallen."

Saunders said that recent actions taken at the company, like building out a new executive team, exiting low-margin categories, taking renewed control over inventory and rebooting product margins, together amount to "course corrections [designed] to fix problems within the business."

Meanwhile, unexciting stores and wavering relevance to customers have hurt the retailer's sales. While up against the challenge of reversing that state of things, Penney is pressured by $3.6 billion in long-term debt. In Q2 alone it paid out $74 million in interest expenses. That debt load has reportedly driven Penney to seek out restructuring advice. (However, the company maintains it is not preparing for a Chapter 11.)

"[J.C. Penney] has enough liquidity to function for now, but it also has a big debt pile and a broken business that needs investment to fix," Saunders said. "Those things are uncomfortable bedfellows."