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



A Billion More Reasons to Avoid J. C. Penney

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

"All businesses need to be young forever. If your customer base ages with you, you're Woolworth's."-Amazon CEO Jeff Bezos

Struggling retailer J.C. Penney  (NYSE: JCP  ) announced plans to offer as many as 96.6 million shares to the public in an effort to raise capital -- as much as $1 billion -- in order to provide a cushion and stability as the company attempts to turn itself around. And while this will help the company in what may be a last-ditch effort to turn around, it's another terrible sign for investors. Let's take a closer look at why.

A ship lost at sea?
Coming off one failed attempt at an image change, the ouster of the CEO who was brought in to turn the company around, and the exit of activist investor Bill Ackman from the board of directors and a full divestiture of his hedge fund's stake in the company, 2013 has been an interesting year at Penney. Toss in a 16% decline in sales in the past year -- a number that ramps up to over 30% since the beginning of 2011 -- and it's easy to see why Penney, with its huge footprint of stores and the high cost of operating a large retail business, is quickly running low on capital.  This is especially troubling with the holiday shopping season, a period where many retailers generate essentially all of their annual profits, just around the corner. 

Penney is also shedding a member of its management team, Controller Mark Sweeney. And in shades of CEO Mike Ullman replacing the man who replaced him earlier this year, another former executive, Dennis Miller, is returning in an "interim" role to replace Sweeney. Simply put, we have two men who were at the center of the decline of Penney being brought back in this year to right the ship. This all adds up to major uncertainty as to the direction the company will go. 

What staying young looks like
(NYSE: M  ) has kept its image fresh and young with a powerful marketing campaign called "One Star," featuring popular celebrities who customers relate with. The company's focus on appealing to a younger audience has led to stable growth since the beginning of 2011, growing revenue by 11% over that time, and earnings per share an astounding 75%. As a result, shares are up 70%, while Penney's shares have declined more than two-thirds. Penney's marketing has returned to its heavy reliance on coupons, which have very little attraction to the younger, more dynamic audience that Macy's is attracting, which is more interested in fashion trends than discount shopping. 

Additionally, the explosive growth of web commerce, especially  Amazon  (NASDAQ: AMZN  )  has continued to pressure all traditional retailers. Amazon's sales over that same period-early 2011 until now -- have grown more than 80%. And while Amazon doesn't heavily compete in clothing the same way that it does in consumer electronics, books, and digital media, the trend to Internet shopping is quickly spreading to fashion. Per Internet Retailer, Gap  (NYSE: GPS  ) grew its web sales by 20% in 2011, and 24% in 2012, even as total sales were essentially flat. As a result, earnings per share are up more than 40%, partly due to the increased profitability of web-fulfilled sales, and the stock price is up 83%. 

Foolish final thoughts
Maybe Ron Johnson's attempt to shift Penney away from its current customer base was heavy-handed, as the serious revenue decline during his tenure seems to indicate, but there are plenty of reasons to wonder whether the management team in place will be able to both satisfy loyal customers while also appealing to a new crowd. Because frankly, Penney, to paraphrase Bezos from the open, is looking more and more like the next Woolworth's than Macy's. And that was true before shareholders lost more than 40% of their equity through this share offering. Don't throw good money after bad. It's time to move on. 

J C Penney's future may be cloudy, but there are a handful of retailers with especially good prospects. To learn about two that are especially appealing, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Read/Post Comments (1) | Recommend This Article (4)

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.

  • Report this Comment On September 29, 2013, at 10:11 AM, willy1514 wrote:

    I got a JCP charge card. Even though my name was correct on the application, when the card came, they had my name wrong. They refused to correct THEIR mistake unless I went back to the store to do so. I live 40 minutes from the nearest JCP. I cut the card into several pieces and returned it. I got NO further communication from JCP, no apology, etc. I'll never go back.

Add your comment.

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: 2658489, ~/Articles/ArticleHandler.aspx, 9/28/2016 12:03:30 AM

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 2 hours ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

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

9/27/2016 4:00 PM
AMZN $816.11 Up +16.95 +2.12% CAPS Rating: ****
GPS $22.29 Up +0.06 +0.27%
Gap CAPS Rating: **
JCP $9.55 Down -0.02 -0.21%
J.C. Penney CAPS Rating: *
M $36.60 Up +0.36 +0.99%
Macy's CAPS Rating: **