This Penney Can't Be Saved

J. C. Penney (NYSE: JCP  ) shares soared last week despite the retailer's dismal quarterly tidings. CEO Ron Johnson may have a charismatic personality that can drum up investor confidence and stock price, as well as the support of activist investor and significant shareholder Bill Ackman, but investors, beware: There's no saving this Penney.

J. C. Penney's sales suffered horribly in the most recent quarter: Total revenue dropped 23%, and same-store sales fell a stomach-turning 22%. Even worse, the retailer reported an astounding quarterly loss of $147 million, or $0.67 per share, versus last year's profit of $14 million, or $0.07 per share.

I'm think most of us are aware that Johnson, who previously worked for Apple (Nasdaq: AAPL  ) , instituted a bunch of initiatives that have only turned shoppers off.

Business Insider provided a whole list of strange ideas Johnson offered up for investors to cling to, including haircuts "to help make Americans look better," coffee bars and juice bars, and employees conducting digital business with iPads so "it'll be just like Apple: boom, boom, boom."

The retail reality is that major turnarounds are rare. J. C. Penney is beginning to look as lost as long-struggling Sears Holdings (Nasdaq: SHLD  ) , which has been losing competitive standing for years despite the presence of famed hedge fund manager Eddie Lampert.

Last month, when I pointed out three reasons to sell Sears, I commented that at least J. C. Penney management has some interesting ideas, but given the recent quarter and some of the stranger initiatives that caused investors to bid up Penney shares, the stock seems increasingly risky.

Here's another warning sign: Several major credit ratings agencies have downgraded J. C. Penney's credit status to even junkier levels than before.

The current economic climate is about as dangerous as the one that claimed the lives and livelihoods of indebted, struggling retailers like Borders and Circuit City. Plunging sales, falling customer traffic, and high debt loads should make investors awfully nervous, even if someone's promising miracles. Meanwhile, in such an environment, discounters like Wal-Mart (NYSE: WMT  ) and department stores like Macy's (NYSE: M  ) will likely squeeze J. C. Penney out of the running for many demographics' discretionary dollars.

Is J. C. beyond help? I think so. Share your thoughts on J. C. Penney in the comments box below. Or, if you're more interested in Apple than what its former executive Ron Johnson is up to at Penney's, check out this report on the tech giant, which includes a full year of updates. Click here to claim your copy now.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Comments from our Foolish Readers

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  • Report this Comment On August 13, 2012, at 4:37 PM, TheeMadCatte wrote:

    Yes, they are beyond hope. Ron Johnson's wacky ideas have driven a stake through the heart of JCP. The most damning aspect of his performance is his arrogance, even in the face of diminished prospects for the company. That sort of hubris at the top will kill a company, even one as historically venerable as JCP.

  • Report this Comment On August 13, 2012, at 5:26 PM, garymba wrote:

    I agree. All of the words as to "why" they will be among the fallen come down to a simple, identifiable, and avoidable blunder. Mr. Johnson's "strategy" is based on the idea that he (with a multi-billion dollar retailer as proxy) will "retrain" customers to shop (in a department store) the way he thinks they should (arrogance, hubris, wishful thinking?). All else is follow-on, including the series of errors when JCP management (and investors) believed him.

    "Marketing" doesn't "train". Marketing studies behaviors, then targets actions to capitalize on the behaviors identified as exploitable. For Sale signs have adorned shops for thousands of years (there is a reason for that). And even Walmart, who has won the gold in being identified as the low-price (every day price) leader... has Sales. It's retail. You need traffic.

    I believe Ron (and others who bought the hype) missed the important thing about the Apple Retail magic. To some degree, it was Ron, but mostly it was the product(s). Owning the product is an "experience", so buying it can be. I don't believe there is (or will be) a translatable "blouse buying experience". The Genius Bar is a huge success at Apple, and is integral to the overall "experience" (it makes getting tech support an experience, creates "traffic", and enhances product appeal). I can't forsee needing tech support (from a Genius) for my tie, or belt, or bad haircut.

    There is no doubt that JCP stores will be more hip, and "cool" with a mall-in-a-mall after the billion dollar makeover. But the "boom boom booms" we'll likely hear are the collective footsteps of customers going to the other end of the mall (after the cookie cake and Starbucks) to check out the Sale at Macy's.

  • Report this Comment On August 13, 2012, at 6:13 PM, FoolishLonghorn wrote:

    Beyond hope? No. On the ropes? Certainly.

    Unlike Best Buy or the now defunct Circuit City, JCP does not face significant competition from the internet.

    And unlike Sears, Penneys is not trying to sell everything--tools, lawnmowers, car parts, lawn furniture, etc. in addition to clothing.

    The apparel retails market place is a fickle one. The hot place to shop changes all the time, and this years success story is often struggling the next year.

    Penneys has little chance to be the cool place where the kids like to shop. Kohls (not mentioned in the article) is probably the biggest threat to JCP. Penneys wants to be a place where mom goes to grab some jeans for the kids and maybe some practical shoes for herself.

    Penneys had a solid customer base who were perfectly happy with the old format. The new format has failed to bring in new customers, while alienating the old ones.

    Penneys is wounded and may not survive. But it was a profitable company not that long ago, and certainly it may heal and survive.

  • Report this Comment On August 13, 2012, at 7:33 PM, jrguska1 wrote:

    Why go?

  • Report this Comment On August 14, 2012, at 8:13 AM, sevenheart wrote:

    The most fatal of errors was their effort at social engineering. A single mailing to everyone in their markets of a flyer,, not highlighting products or prices but concepts of style with an in your face lesbian couple with a child turned off so many people. JCP will never regain those former buyers. People are pretty tolerant but they don't want a retailer demanding acceptance of certain politically driven social issues. Target has stumbled on the same politically guided marketing. The gay and lesbian community may be pleased with this advocacy, but I doubt their patronage can make up for the loss of customers with traditional views.

  • Report this Comment On August 14, 2012, at 8:28 AM, tbenn210 wrote:

    I agree from an investment point of view, however as a shopper, I really like what JCP has done. Really nice clothes for really good prices. I compared comperable items in the mall a couple of times and JCP was easily the best priced. I also bought some clearance items I wasn't planning to buy because of the awesome prices. I am not that much of a shopper, but I will go back to JCP. I just won't put my money in their stock.

  • Report this Comment On August 14, 2012, at 9:28 AM, Cooldude0007 wrote:

    I totally agree with the tbenn210 above!

    I just had to check it out and before we go experience the store we should hold back any comments. And I too will not buy their stock, before 2013, that is.

    Awesome prices! I bought nice T Shirts for 7 to 8 bucks. Atleast 12 bucks at Kohls. Some of the departments are done and look great. Some are still undergoing their redo. The tags are clearly marked. Big wider isles too.

    Yes you should go see, then it will start to make sense. I saw a pair on name brand jeans for 25 bucks that would be 60 to 70 at the other end of the mall. Also, I am a bit tired of Kohl's selection and their so called sales. They take a shirt worth $22 and mark it $55, then put it on "sale" for $$30 and send me a 20% off coupon booklet. Gee, now it's $24 and that's all it was worth to begin with. Kohl's inventory is getting stale.

    Bottom line the ladies loved the Penney's coupons and their gone, forever. He did make one concession, taking the pricing from new, 3 category to only one. He did that because the 3 price system was confusing people, or so he said.

    He also failed to communicate during all the planning and construction phase, big mistake!

    He has actually created a new store, but for some reason thinks all the previous clients will come running back.

    All these retailers are up and down, sometimes Kohls is up, sometime its Wal Mart or Macy's ,but never are they all up at once. Had sector to be in for the long run,entirely too hot and cold for me.

    I do hope they survive, if for no other reason too keep their competitors prices down and provide employment for thousands of people. Empty dept stores in malls are not a thing that does anyone any good.

  • Report this Comment On August 14, 2012, at 2:24 PM, Darwood11 wrote:

    I don't know if they are out, but I do agree that they are down.

    I wouldn't purchase JCP stock, if only because there are a lot of other places to put my money. It's also because I consider the retail sector to be a tricky place to make bets, and I do categorize buying JCP today as gamble.

    I'm of the opinion that the safest way to own JCP is inside the wrapper of one of my mutual funds.

  • Report this Comment On August 17, 2012, at 12:31 PM, ScottishRight wrote:

    The board should fire Ron Johnson, claw back his parachute and reinstate the old J.C. Penney weekly sales. The customers loved that Penney operating model and will return if Penney fixes this soon. The lesson here is that the customer is always right.

  • Report this Comment On August 17, 2012, at 3:11 PM, RMarro32 wrote:

    On a strictly personal note, I used to shop there frequently, but haven't gone near a Penney's in a couple of years. I fou d their merchandise wanting.

  • Report this Comment On August 18, 2012, at 12:47 AM, PaintItBlue wrote:

    I don't know if the customer is always right, but if the customer comes in and can't even find the t-shirts any more, it's a problem.

  • Report this Comment On November 02, 2012, at 9:46 PM, jeffcklein wrote:

    One of my pet peeves with JCP is that ALL merchandise is ordered in Texas; the locals have not choice but to accept what is ordered. I live in Seattle. We have, for example, a large Asian population. Small. So you go to JCP and they are out of small and medium sizes, and overstocked in large and extra large. This makes no sense. My suggestion to JCP is to let the local stores make their own orders based on their specific clientele. I'm not a stockholder, btw.

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