Why It May Be Time to Give Up on J.C. Penney

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Based on this year's performance, there hasn't really been a "right" time to invest in J.C. Penney (NYSE: JCP  ) . The company has had no end of woes, and it has so far failed to make the long-coming turnaround anything more than a theoretical entity. The latest round of trouble, a rumor that CIT Group had cut off financing, dropped the stock as much as 13%. JC Penney's assurance that it was only a rumor was mitigated by Citigroup's -- banks need better names -- downgrading the business for its failure to produce results.

While I thought that the time to bail out on J.C. Penney came in 2012, some investors seem tied to the potential in the business. The brand, the locations, and the price point should all combine to make this a winner -- but it just isn't. While J.C. Penney has the cash to keep working, there's no reason to invest in a company that's just spinning its wheels.

The turnaround turnaround
There's something to be said for giving people the time necessary to make things better. In recent years, football at the college and professional levels has been so quick to give up on coaches that it makes me furious -- everyone deserves a fair shot. The thing is, J.C. Penney has had its time. Yes, Ron Johnson took up a big piece of that time, and yes, Mike Ullman is just getting restarted, but there's still no clear path.

Some investors have speculated that J.C. Penney may have a new role as a real estate manager, leasing out its weaker locations to other companies. I think that's a great idea, and if it ever comes to fruition, everyone should consider it. But that's not investing in J.C. Penney -- that's investing in a vague hope. It's also a hope that has grown dimmer since J.C. Penney leveraged its real estate to take out a huge loan.

Today's note from Citi spelled it out in one sentence. It read, "We do not believe that JCP has made progress in stabilizing the business in 2Q13, and we see no evidence of a turnaround in the works." 

Dropping the ball
The key for me is the lack of stabilization. Everything is still up in the air, and no one knows where it's all going to land. In the last quarter, comparable store sales declined 16.6% year over year, with revenue dropping 16.4%. Macy's (NYSE: M  ) and Nordstrom (NYSE: JWN  ) were both able to make gains over the same period. Macy's pushed comparable sales up 3.8%, while Nordstrom managed a 2.7% increase.

The percentage one way or the other is almost less important than the fact that both Macy's and Nordstrom know what they're doing, and what they want to do. Macy's is revamping stores and retraining employees to make the Macy's shopping experience something different. Nordstrom is innovating in-store and online to try and become an omnichannel leader.

J.C. Penney is filling the store with back-to-school styles from the same second tier brands that it's always had, and hoping that it can make a few bucks off home wares, while its battle with Macy's over Martha Stewart products continues. Walking into a store now, I can't imagine anyone being struck by the company's quality -- they'd be too distracted by the writing on the wall.

While J.C. Penney hasn't been able to keep up with the pace of change, that doesn't mean everyone has been left behind. The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On August 02, 2013, at 10:57 PM, Burstedbladder wrote:

    I have not shopped there in over 20 years and have no intention of ever going back. The stuff is cheap and krappi and overpriced for all that "Made in China" junk.

    Let them sin like the Titanic, and please, do not throw out any life preserver (money) to them.


  • Report this Comment On August 02, 2013, at 11:34 PM, lilyvonshtupp wrote:

    Last time I went to Pennys a couple months ago was to purchase jeans. I used to get all my jeans there. They had NO Levis or Lees for women in my size. They had very little clothing at all other than mens stuff.

  • Report this Comment On August 03, 2013, at 4:51 AM, LadyForever wrote:

    I have a problem with your article. Have you actually shopped in a JCP this week? I have, and I've compared the quality of their merchandise to the most expensive store in our city and I found them to be no different. In fact I saw some items from different brands that appear to be exactly the same, only the brand is different. People that say JCP sells inferior brands are fools and snobs. I like JCP brands, and I like how they treat us customers. I suggest you don't knock it until you've tried it. I'm sure the shoppers, stockholders and the employees would very much appreciate it.

  • Report this Comment On August 03, 2013, at 12:37 PM, Acosta6678 wrote:

    Last weekend I've visited Laredo JCP shop and asked to The lady at the cashier about the recent sales performance

    She told that since june people are Going back to store and sales are rising "substancialy". -yes thats the word she uses

    For me thats The best termometer.

  • Report this Comment On August 03, 2013, at 5:35 PM, JcpFan wrote:

    Burstedbladder. How the hell do you know what's at jcp if you haven't shopped there in 20 years? Idiot. Infact last year I bought all my Christmas presents for my nephews there that were made right here in the USA. All wooden toys and some jeans for myself. Good quality. But again. 20 years not being inside? What do you know??

  • Report this Comment On August 05, 2013, at 3:50 PM, JimCusson wrote:

    I can tell you that at the offices of our Charlotte retail-focused design agency, Theory House we have women in their 20's and 30's talking about shopping at JCP - and they have never historically been the core shopper. I think patience may be in order here.

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Related Tickers

8/26/2016 4:02 PM
JCP $9.89 Down -0.08 -0.80%
J.C. Penney CAPS Rating: *
JWN $51.26 Down -0.30 -0.58%
Nordstrom CAPS Rating: ****
M $38.56 Down -0.69 -1.76%
Macy's CAPS Rating: **