J.C. Penney Company, Inc. (NYSE:JCP) posted a 0.9% increase in its same-store sales for October, which paints an impressive picture, but the implied two year sequential trend in the quarter is not healthy, and trends are not getting better as was expected, says a report from Sterne Agee analysts Charles Grom, Renato Basanta, and John Parke.

J.C. Penney JCP

The report states that the time is not favorable for J.C. Penney Company, Inc. (NYSE:JCP) and the “slope of the comp improvement needs to be much steeper than it currently is running.”

Same-store sales up, in line with guidance

J.C. Penney Company, Inc. (NYSE:JCP) reported an increase in its same-store sales by 490 basis points sequentially from -4.0% in September to 0.9% in October, which was in line with the forecast made by the company in mid-August and again in early October.

J.C. Penney Company, Inc. (NYSE:JCP) also reported upside in sales, which increased 37.6% year-on-year compared to a 25.3% rise in September. Average transaction value as well as UPT got better in the month, but AUR and traffic dropped, which according to the analysts is both “disturbing and surprising.”

Trends not impressive for J.C. Penney

Though the retailer failed to provide the monthly comps in 2012, analysts estimate that while comparing the comps to 2012, there was a sequential decline of approximately 800-900 basis points from August to October. For the third quarter of 2012, same store-sales came in negative at 26.1% where August was better by 800-900 basis points and October was lower by 800-900 basis points.

When these numbers are compared with 2013’s third quarter monthly progression, it comes out that the two year trend is getting worse, which is a cause of concern, according to analysts.

“On the math, we estimate the 2-year trend moved from negative 19-21% in August to negative 25-27% in September to negative 37-39% in October,” says the report.

Estimate for 3Q and beyond

Gross margins of J.C. Penney Company, Inc. (NYSE:JCP) in the third quarter was impacted by lower clearance margins resulting from higher inventory levels, number of units sold increased on clearance and re-focusing on more promotional strategies. Gross profit margin for the company was best in October though it improved continuously during the quarter.

The company clocked in sales much in line with the analysts’ estimates for the third quarter. For the third quarter analysts are modeling a loss of $2.36 and for the full year, loss is expected at $6.53. For fiscal 2014, analysts project a loss of $2.34.

Sterne Agee analysts have a Neutral rating on J.C. Penney Company, Inc. (NYSE:JCP) with a price target of $9.