Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Sears Is the Wrong Role Model for J.C. Penney

Long-struggling retailer J.C. Penney (NYSE: JCP  ) saw its stock soar today as reports surfaced that the company may be looking to use its real-estate assets to raise capital. As of 1:50 p.m. EDT, the stock is up 6%. J.C. Penney's move would be part of a broader strategy to maximize its available cash. The retailer borrowed $850 million from its credit line yesterday and is working with advisors to raise at least $1 billion to put toward completing its reorganization efforts.

What's troubling, though, is how familiar this storyline sounds. In particular, it seems eerily reminiscent of the assurances Sears Holdings (NASDAQ: SHLD  ) gave investors that its real-estate assets would bail out the former retail giant.

Is J.C. Penney following Sears down the wrong path?
J.C. Penney could tap its real-estate assets in many different ways. One proposal involves dropping its real estate into a real-estate holding-company subsidiary. The holding company could then issue notes that would be guaranteed by the J.C. Penney parent company. Another possibility involves selling J.C. Penney's properties outright and then leasing them back. That's a strategy Advanced Micro Devices used to raise $164 million in cash with its Austin business campus.

But thus far, when investors have looked to real-estate plays as a way to justify investing in beleaguered retail operations, they've been disappointed. Sears Holdings (NASDAQ: SHLD  ) is the obvious example, with many analysts saying the company has undervalued assets in its mall property leases scattered across the nation. Yet by itself, real estate hasn't saved Sears from the uninspired management of its core retail business, which has continued to founder as customers have seen little in the way of innovation or exciting new products.

Admittedly, Sears has had some success raising cash with outright sales of its assets. Last year, for instance, Sears sold nearly a dozen lucrative properties, including its crown-jewel Ala Moana location in Hawaii, to General Growth Properties (NYSE: GGP  ) for $270 million. As Fool contributor Adam Levine-Weinberg noted earlier today, the fact that major J.C. Penney investor Bill Ackman also has a big position in General Growth Properties boosts the odds that a potential deal will go through.

Be careful
It's clear that J.C. Penney needs to raise cash to move forward, and a real-estate strategy may help it solve its short-term needs. But the experience of Sears shows that relying on real estate to provide a long-term solution to retail troubles is far from a surefire strategy.

Don't settle for less than the most up-to-date information you can find. Find out whether J.C. Penney is a buy today by accepting this invitation to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about the retailer's turnaround -- or lack thereof. Simply click here now for instant access.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2366130, ~/Articles/ArticleHandler.aspx, 9/25/2016 3:23:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
JCP $9.78 Up +0.02 +0.20%
J.C. Penney CAPS Rating: *
GGP $28.76 Up +0.08 +0.28%
General Growth Pro… CAPS Rating: **
SHLD $11.54 Down -0.17 -1.45%
Sears Holdings CAPS Rating: *