J.C. Penney's Shiny New Chief

Hurtin' retailer J.C. Penney announced last week that it's getting a new chairman and CEO from Barneys New York. Investors cheered the company's decision to hire Allen Questrom. He brings 30 years of retail experience to the table. Online sales increases are also an interesting trend at the company. Watching the story unfold under the new guy, though, will be the real drama for investors in the months and years to come.

By LouAnn Lofton (TMF Lou2)
August 2, 2000

J.C. Penney's (NYSE: JCP) knight atop his horse showed up last week to attempt to lead the company back to the land of successful retailing. Allen Questrom will join the company as chairman and chief executive officer from Barneys New York, where he'd been serving as chairman and chief executive officer since May 1999. Questrom replaces James Oesterreicher who announced in May that he would be retiring after serving as head of the company for four years, and having been with the company since 1964.

Questrom's experienced in turnarounds
Questrom has been fixing what's wrong with retailers for 30 years. He's played bankruptcy buster twice in the 1990s, first saving Federated Department Stores (NYSE: FD) then leading Barneys New York back from bankruptcy to gold. While at Federated, he oversaw the purchase by the company of R.H. Macy & Co. and the Broadway Stores, which promoted Federated to the largest department store in the United States. For J.C. Penney's shareholders, this news is a blessing.

J.C. Penney's struggles
J.C. Penney has struggled to increase sales and drive earnings for the last several years as companies like Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and more recently Kohl's (NYSE: KSS), have gained market share. J.C. Penney's stock has fallen to its lowest levels in over 10 years, though the shares did pop-up last week on the Questrom news as investors expressed their enthusiasm. The company has been making piecemeal attempts to fix things. This year it announced plans to close 45 of its underperforming department stores and 290 of its Eckerd chain drugstores. That was in February, and in May Oesterreicher announced his departure.

The company also announced first-quarter earnings in May, and they were expectedly unexceptional. Brian Lund covered them for Fool News, highlighting the fact that revenues fell 2.4% compared to the year before. He also laid out the cold truth that, with the exception of 1996, same-store sales have decreased each year since 1995. On the plus side, the company did retire about 11% of its long-term debt during its first quarter.

Online sales for the company increasing
One interesting and encouraging trend that has developed for J.C. Penney is its online sales. In the first quarter, Internet sales for the company increased almost 700%, totaling $47 million. And today the company announced that it expects to generate $300 million of sales this year from its Internet site. This marks the second time this year that J.C. Penney has raised the outlook for its online sales. J.C. Penney's Internet strategy works easily and without much capital commitment from the company, which can offer a variety of delivery and return options, given its network of 1,100 stores across the country.

Questrom is the story to watch
Questrom's turnaround magic has worked before. There's good reason to believe he'll get inside J.C. Penney and start casting his spells. But like all good things, it will take some time before results are seen, and possibly some more pain along the way. Growth at the company's online operations is encouraging, but they can't be expected to carry the weight of its "real world" failures. The real story to watch here is Questrom and the moves he makes to get this retailer upright and focused.

Your Turn:
Is Questrom the man with the plan? What would you do first if you were appointed to head up J.C. Penney's? Let's talk about it on the J.C. Penney discussion board.

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