Two More Take a Hike From J.C. Penney. Should You?


Source:  J.C. Penney

When it comes to a turnaround situation, it's rarely a good sign when an executive or a high net-worth investor leaves. In the case of J.C. Penney (NYSE: JCP  ) last week, we got news of both.

The drama continues
J.C. Penney is no stranger to drama. As the company has struggled to turn itself around, it has been criticized for poor marketing, operations, shareholder communications, and even a misleading Valentine's Day sale.

With its V-day "sale," the retailer has been accused of artificially hiking prices early on so that it could later mark them down and offer a "huge discount" for marketing purposes. That honestly doesn't seem like that bad of an idea, but it generated a bit of negative press and the results remain to be seen. Given the terrible weather, don't expect much fireworks on that move anyway.

Billionaire dumps millions
The first of the two in the latest J.C. Penney exodus is billionaire George Soros. While he may not necessarily be the world's leading fashion guru in terms of judging the company's product line, he has done rather well over the years as a result of hard analysis. Apparently, he's not liking what he sees in the J.C. Penney turnaround.

In a form 13F filing with the SEC filed on Feb. 14, George Soros revealed his holdings on Dec. 31, 2013. As of that date, he owned around 13.8 million shares of the company. This is down from the almost 20 million shares he owned three months earlier so it is a 31% reduction. This may be the beginning of a full exit. Would it honestly surprise you if we come to learn that he's dumped the rest with the next filing in three months?

Source: CNBC

The numbers guy doesn't seem to like the numbers
Then in a press release on the day before Valentine's Day, J.C. Penney revealed that CFO Ken Hannah will be taking a hike as of March 24. Stuff happens, and maybe the exit is not because of anything bad, but Hannah didn't have anything to say in the press release itself. There was no "I wish to thank the board" or "I'm still confident in the future" speech.

The good news is that the press release was very flattering toward Hannah, and he didn't suddenly storm out but rather he gave ample time for a transition to get his replacement up to speed.  

It could be much worse
While it's rarely a sign to celebrate when a CFO of a company you invested in quits, there are certainly worse situations that can occur when a CFO leaves such as what was seen with KiOR (NASDAQ: KIOR  ) and Ruby Tuesday (NYSE: RT  )

With KiOR, its then-CFO John Karnes gave his resignation notice and *poof* two days later he was gone. There was no replacement lined up for him, no transition period such that Hannah gave, and no positive press release praising him for his work. KiOR is in the biofuel business, so it's much different than J.C. Penney, but it is also a company struggling to turn itself around and survive. At least the departure of Hannah from J.C. Penney is a bit more organized.

Then there is the restaurant chain Ruby Tuesday. Like J.C. Penney, the company is struggling with a shrinking cash balance, declining sales, and continued net losses. 

Source: Ruby Tuesday

 With Ruby Tuesday, two executives quit within the same week, one a senior VP and the other the chairman of the board. Even worse, the chairman of Ruby Tuesday sold almost all of his shares in the open market at around the same time as his departure. We see no evidence of Hannah doing that, at least not yet.

Foolish final thoughts
Although I'm personally very skeptical of J.C. Penney's turnaround actually succeeding, the decisions by Soros and Hannah to leave aren't necessarily in and of themselves reasons for Fools to sell and certainly not to short the company. Whether J.C. Penney will turn itself around successfully still remains to be seen. That being said, even minor events or uncertainties such as these add to the growing piles of concerns for the company. Fools should continue to watch J.C. Penney with extreme caution.

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Read/Post Comments (3) | Recommend This Article (3)

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 February 21, 2014, at 5:22 PM, thethreestooges wrote:

    Stupid people are using old news and write article bashing the stock holders one sideded, should you?

    Two more not, but the same two that took a hike.

    In fact, another fund bought Soros stake when he reduced, but not out. Do you know who? If you do you job as a good contributor, you would have found out and point out in your article. Do you even know who replace CFO Hannah position? You did not mention his great credentials, rather you went on to compare CFO from KIOR and Ruby Tuesday. Why are you distracted with irrelevant information?

    Get another job, you should!

  • Report this Comment On February 21, 2014, at 11:01 PM, Roddy6667 wrote:

    When JCP raises their gross profit margin to a level that puts them on a track that is different than the current one, it will be worth buying. Right now the cheerleaders are talking about 35%, but that is a dream in the future.

  • Report this Comment On February 22, 2014, at 7:06 PM, Imperitore wrote:

    This is old news, in fairness why don't they report on the new investors in JCPenny such as their own people via the pension pool buying 7.9million shares, Tiger consumer mgnt 3.2million shares, STRS Ohio 2.5million shares, NJ pension fund 2million shares, Lazzard 1.8Million share, Evercore 1.8million shares and on and on. I cant believe that this news wasn't visible. It is sad when the scale is not balanced due to bias articles full of old news and watered down reporting. Shame on you Nicky Friedman get realistic and learn how to report with validity. As for the rest, of you people do the right thing and give this American company a break.

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