Why J.C. Penney's New Brooklyn Store Is Only Part of the Revival

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NEW YORK (TheStreet) -- J.C. Penney has a big celebration planned for its first store in Brooklyn. Investors that have bought into J.C. Penney's survival story also have been enjoying their own party.

While the stock fell 2.5% in response to cautious third-quarter gross margin guidance the retailer issued on Aug. 15, it has since recovered a cool 15%. The stock closed Thursday at $10.85.

J.C. Penney's new 124,000-square-foot Brooklyn store -- a ribbon-cutting ceremony is scheduled for Friday morning with other events planned for the weekend -- will showcase the latest in interior and exterior design from the Plano, Texas-based company. But the opening has little to do with the stock surge of the past two weeks.

The actual drivers -- better in-stock levels of private and national brand merchandise and consumers biting at "50% off" and "big buy" signs in the store instead of waiting for profit-killing markdowns -- provide a hint that the company's cautious gross margin guidance for the third quarter could prove conservative. J.C. Penney could update its third quarter same-store sales and gross margin guidance on Oct. 8 at its analyst day, where it will incorporate a tour of the new Brooklyn location.

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The notion of J.C. Penney experiencing a better-than-expected back-to-school selling season is not pie in the sky, its possibility was fleshed out on the second-quarter earnings call.

"Our store conversion, average transaction size and average unit retail for the quarter were all up vs. last year. All regions of the country comped positively in the quarter driven by continued growth in our two largest businesses, women's and men's apparel," said J.C. Penney Chief Financial Officer Ed Record. He added that "the restoration of key private brands has been fundamental to our turnaround, and not only give customers style at a price that fits their budget but at margins that are 300 to 600 basis points higher than other brands."

The Visuals

In these self-produced photos, the aspects that Record explained, such as healthier in-stock levels on traffic-driving basic apparel, are on display.

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Hearty in-stock levels on key items throughout the store, as seen in the number of goods stacked on the fixtures.