More than 10 days have passed since J. C. Penney Company, Inc. (JCP – Free Report) came up with third-quarter fiscal 2017 results and the stock is still rallying. However, the question lingering in the investors mind is whether it can sustain the rally. Let’s delve deeper.

Hidden Catalyst

The company’s shares have tanked 66.5% in a year, wider than the industry’s slump of 42.3%. However, it took a sharp U-turn and rallied 15.3% on Nov 10. This upside can be attributed to the company third-quarter fiscal 2017 results which impressed investors. Ever since the company has reported third-quarter results, shares have gained nearly 18%.

The company’s bottom-line came in above the Zacks Consensus Estimate after missing it in the preceding quarter. Meanwhile, the top line surpassed the estimate for the second straight quarter. However, the big take away from this quarter was a rise in comparable-store sales (comps) that marked the best quarterly comps since fiscal 2016. Further, sequentially comps increased 300 basis points (bps). In the reported quarter, appliances sales increased more than double. During the quarter, home, Sephora, footwear and handbags plus salon were the best performing divisions that outweighed the company’s total comps.

The in-store Sephora departments continue to outperform by drawing more customers. During fiscal 2016, the company opened 61 Sephora stores. In third-quarter fiscal 2017, it opened 38 Sephora stores, bringing the total count to 70 so far in fiscal 2017. At the end of the reported quarter, the total count of Sephora locations inside J. C. Penney was 642 stores. Sephora is doing exceptionally well and is one of the best performing categories.

The Zacks Rank #3 (Hold) company has taken up several strategic initiatives to drive traffic. The company, in order to enhance customer shopping experience, has been focusing on remodeling, renovating and refurbishing stores with special focus on enhancing high-margin center core department that houses handbags, fashion accessories, sunglasses and fashion jewelry. Earlier, the company announced a fresher and better J. C. Penney Rewards program. In an effort to lure more customers and ramp up sales performance, it has enhanced the loyalty program, introduced for the first time in 2008. Per the new reward program, every customer will get a reward of $10 for every 200 points earned.