J.C. Penney Company, Inc. (NYSE:JCP) has started showing signs of improvement. The company has received upgrades from many analysts. Imperial Capital analysts Mary Ross-Gilbert estimates J.C. Penney’s first quarter sales to rise 4.3%, thanks to re-opening of the home department in many stores. Gilford Securities analyst Bernard Sosnick says that the retailer must achieve its projects sales gain of 3-5% in Q1, 2014 to reassure investors. Sosnick has a Buy rating on the struggling retailer.

J.C. Penney’s Q4 expenses were down 17%

The Plano, Texas-based company reported a tax credit of $270 million or $0.88 a share during the fourth quarter. Attributed to pension adjustments, this tax credit changed J.C. Penney Company, Inc. (NYSE:JCP)’s bottom line from a pretax loss to $35 million profit. Analysts wondered whether the credit contributed to a 17% decline in the company’s expenses. If that’s the case, the benefit would have had implications on J.C. Penney’s expense projections for Q1 and full year.

Former J.C. Penney Company, Inc. (NYSE:JCP) employees told Gilford Securities analyst Bernard Sosnick that the company likely booked reserves no longer required to pay hefty pensions as a credit to shareholders’ equity. Over the past few years, the company has fired thousands of employees who had served for more than 20 years, and many higher paid executives. Fired workers, between 50-55 years, left with ridiculous pension prospects. And all that money was booked as a credit to shareholders’ equity.

Why J.C. Penney’s Q1 expenses won’t fall heavily

Sosnick says J.C. Penney Company, Inc. (NYSE:JCP)’s annual pension expenses will be much lower going forward. That’s because there are fewer people on the payroll, and new employees are covered by far less generous plans. The struggling retailer’s pension plan is fully funded. So, favorable pension investment returns would result in more credits to income.

J.C. Penney Company, Inc. (NYSE:JCP) can’t obtain the benefit of NOL tax credits because the company is still suffering losses. Accounting regulations allow a company to obtain the NOL tax credit benefit only after it has reported two consecutive quarters of pre-tax profits. Sosnick doesn’t expect the company to turn profits until Q4. The research firm says that the decline in Q1 2014 expenses won’t be anywhere close to 17% that the company reported in Q4, 2013. J.C. Penney management estimates the decrease in Q1 expenses to be less than 5%.

J.C. Penney Company, Inc. (NYSE:JCP) shares were up 0.34% to $8.80 at 9:42 AM EDT.