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[video] J.C. Penney Is Back, Sort Of

Tickers in this article: JCP

This story has been updated from 9:26 a.m. EST wiith additional analysis.

NEW YORK ( TheStreet) - J.C. Penney  shares surged on Wednesday after investors cheered the much-maligned retailer's expectations for improved sales and margin trends in the fourth quarter, suggesting that the worst could be behind it.

"The Q3 results and Q4 guidance that J.C. Penney reported today suggest that a turnaround at the chain continues to take hold," Oppeneheimer analyst Brian Nagel wrote in a research note. Nagel has a "perform" rating on the company.

"Comps are improving albeit against easing comparisons. Clearance activity is moderating and turning less of a drag on margins. JCP is more aggressively controlling costs and preserving capital," Nagel wrote. "We are optimistic that trends at the chain should continue to improve as JCP further pursues its 'back to basics' strategy and distances itself from prior, very disruptive, repositioning efforts. JCP is, however, by no means out of the woods. Per our math, sales still need to improve meaningfully in order to take the risk of another capital raise off the table."

J.C. Penney CEO Mike Ullman says the company is encouraged by November sales so far.

Early Wednesday, J.C. Penney  reported a net loss of $489 million, or $1.94 a share, for the quarter ended Nov. 2. The loss includes 18 cents of restructuring and management transition charges, 4 cents related to primary pension plan expenses and a 9-cent net gain on the sale of a non-operating asset, and a 73-cent loss associated with tax valuation allowances, the company said.

The adjusted loss was $457 million, or $1.81 a share, which includes the loss associated with the tax valuation allowances, but excludes the other one-time items.

Analysts, according to Thomson Reuters , expected J.C. Penney to post a loss of $1.77 a share.

J.C. Penney reported net sales fell 5.1% to $2.78 billion, in the Nov.2-ending quarter, better than the 12% slide during the department store chain's second quarter, but just shy of analysts' estimates calling for sales of $2.79 billion.

Sales on jcp.com jumped 24.5% for the quarter to $266 million.

Women's apparel, men's apparel and fine jewelry were the company's top performing merchandise divisions.

Comparable-store sales declined 4.8% for the quarter, but represented "a sequential improvement of 710 basis points" when compared to the second quarter. J.C. Penney had previously announced that October same-store sales rose 0.9%, the first time they did since December 2011.

Gross margin in the third quarter fell to 29.5% of sales, compared to 32.5% in the same quarter last year, "negatively impacted by lower clearance margins due to the overhang of inventory from the first two quarters of the year, higher levels of clearance units sold, as well as the company's transition back to a promotional pricing strategy as compared to last year's strategy," but it did improve sequentially throughout the quarter, the company said.