(Photo Credit: Mike Mozart)

J.C. Penney (JCP) is set to report third quarter earnings on Wednesday, November 12 after the market closes. The department store company’s stock has stalled out in recent weeks and investors hoping for a turnaround will be looking to take some positive news away from the report.

Three quarters ago J.C. Penney reversed a troubling trend of missing analyst expectations while net losses piled up. Over the past 9 months J.C. Penney has continued to lose money each quarter, but the sizes of the deficits are shrinking, and that’s a start.

(Graph above from ChartIQ Visual Earnings)

Although JCP has outperformed the expectations from analysts on Estimize over the past 3 quarters, the stock dipped violently in early October amid market volatility. But unlike the broader market JCP hasn’t bounced back. Although the stock has shed 30% of its value in the past few weeks, the Estimize community is expecting the department store chain to outperform the Wall Street consensus by a decent margin on the bottom line.

Tomorrow afternoon Wall Street is forecasting that JCP will lose 83 cents per share while the Estimize community is predicting a loss of 78 cents per share. Contributing analysts on Estimize are expecting J.C. Penney to beat the Wall Street consensus by 5 cents per share which is significantly less than the $0.18 average beat which has been reported over the past 3 quarters. The Estimize community is looking for J.C. Penney to cut its 3rd quarter losses by 57% compared to last year. A 57% deficit reduction is great on an absolute basis but it’s still less than the 65% cut to year over year losses reported for the summer quarter in August.

On the top line contributing analysts on Estimize are looking for J.C. Penney to beat the Wall Street consensus by $36 million (1.35%). Over the past 2 years revenue at the retailer has been broadly improving. Year over year sales have gone from falling 28% in the 4th quarter of fiscal 2014 to improving between 5% and 6% over the previous 2 periods. Wednesday analysts on Estimize are looking for a more modest 2.6% revenue improvement.

Same store sales were up 6% last period. That’s now 3 consecutive quarters of comparable sales rose. Gross margins also improved by an impressive 640 basis points, which was a large reason why the company was able to lose less money than analysts had predicted. Online sales were up a solid 16.7% compared to the same quarter of last year, but they still only make up 8.9% of the company’s total revenue.

If the turnaround is going to happen, we’ll have to see continuing same store sales growth, widening margins, and development of JCP’s online business. J.C. Penney still has a lot of work to do, but last quarter its fundamentals appeared to be moving in the right direction. Wednesday afternoon we’ll see if 3rd quarter earnings can add some fuel to the comeback’s fire.