After starting the day deep in the red, the major stock market indices had mostly recovered by early Tuesday afternoon.
Department store J.C. Penney (NYSE:JCP) was able to register a double-digit gain, extending a weeks-long rally despite the mixed stock market. Meanwhile, shares of burger chain Wendy’s (NASDAQ:WEN) tumbled as investors digested a guidance cut and a new breakfast initiative.
J.C. Penney continues to rally for some reason
Shares of struggling department store chain J.C. Penney had shot up 15% by 1 p.m. EDT Tuesday, extending a rally that began after the stock bottomed out in late August. There was no meaningful news driving the stock higher — the retailer did announce a new line of men’s outdoor clothing, but that minor news is unlikely to be driving Tuesday’s gains.
J.C. Penney stock has now nearly doubled in just a few weeks. While the stock is in recovery mode, the company itself remains in deep trouble. Comparable sales have been tumbling, not surprising given that J.C. Penney is one of the weakest players in one of the worst corners of the retail market.
Second-quarter comparable sales crashed 9%, and they were still down 6% if appliances and in-store furniture are excluded. J.C. Penney abandoned its nonsensical plan to sell major appliances earlier this year, refocusing on its core apparel business.
J.C. Penney has been in turnaround mode since 2012, but nothing has really worked. If J.C. Penney is doing this badly when the economy and consumer spending are generally strong, the next recession could very well put the final nail in the century-old retailer’s coffin. This sudden rally for the stock certainly isn’t based on fundamentals.
Wendy’s cuts guidance amid breakfast push
The market really didn’t like fast-food chain Wendy’s plan to push into breakfast. The company announced yet another attempt to sell breakfast foods on Tuesday, and it disclosed that the necessary investments would lead to an earnings decline this year. The stock was off 11.2% at 1 p.m. EDT.
Wendy’s tried launching a breakfast menu in 2012, but that effort was abandoned a year later. This time around, the company is focusing on offering unique items that might have a better shot at pulling customers away from competitors. The Breakfast Baconator sandwich and the Frosty-ccino beverage headline the new menu.
Because Wendy’s will invest $20 million to get the breakfast initiative off the ground, the company now expects adjusted earnings per share to decline by 3.5% to 6.5% this year. Previously, Wendy’s expected a small increase in earnings. The restaurant chain also pulled its 2020 targets, and it will update investors on its long-term view on Oct. 11.
Wendy’s breakfast track record does not inspire confidence, and the unexpected push into the morning daypart may signal that the company sees sales slowing during the rest of the day. Maybe this time will be different, but the market clearly doesn’t think so.