J. C. Penney (NYSE: JCP) shares soared last week despite the retailer's dismal quarterly tidings. CEO Ron Johnson may have a charismatic personality that can drum up investor confidence and stock price, as well as the support of activist investor and significant shareholder Bill Ackman, but investors, beware: There's no saving this Penney.
J. C. Penney's sales suffered horribly in the most recent quarter: Total revenue dropped 23%, and same-store sales fell a stomach-turning 22%. Even worse, the retailer reported an astounding quarterly loss of $147 million, or $0.67 per share, versus last year's profit of $14 million, or $0.07 per share.
I'm think most of us are aware that Johnson, who previously worked for Apple (Nasdaq: AAPL), instituted a bunch of initiatives that have only turned shoppers off.
Business Insider provided a whole list of strange ideas Johnson offered up for investors to cling to, including haircuts "to help make Americans look better," coffee bars and juice bars, and employees conducting digital business with iPads so "it'll be just like Apple: boom, boom, boom."
The retail reality is that major turnarounds are rare. J. C. Penney is beginning to look as lost as long-struggling Sears Holdings (Nasdaq: SHLD), which has been losing competitive standing for years despite the presence of famed hedge fund manager Eddie Lampert.
Last month, when I pointed out three reasons to sell Sears, I commented that at least J. C. Penney management has some interesting ideas, but given the recent quarter and some of the stranger initiatives that caused investors to bid up Penney shares, the stock seems increasingly risky.
Here's another warning sign: Several major credit ratings agencies have downgraded J. C. Penney's credit status to even junkier levels than before.
The current economic climate is about as dangerous as the one that claimed the lives and livelihoods of indebted, struggling retailers like Borders and Circuit City. Plunging sales, falling customer traffic, and high debt loads should make investors awfully nervous, even if someone's promising miracles. Meanwhile, in such an environment, discounters like Wal-Mart (NYSE: WMT) and department stores like Macy's (NYSE: M) will likely squeeze J. C. Penney out of the running for many demographics' discretionary dollars.
Is J. C. beyond help? I think so. Share your thoughts on J. C. Penney in the comments box below. Or, if you're more interested in Apple than what its former executive Ron Johnson is up to at Penney's, check out this report on the tech giant, which includes a full year of updates. Click here to claim your copy now.
