Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of mall retailer J.C. Penney
So what: Thus far, the efforts of former Apple executive Ron Johnson to revive J.C. Penney could be seen as a confirmation of the well-known Warren Buffett quote:
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
Though Johnson came to Penney with big ideas, he's hit some serious bumps in the road in realizing his vision, and the company's performance -- not to mention the stock's performance -- has been abysmal. And it doesn't sound like it's going to get better quickly. Based on what the company said during a presentation yesterday, management expects that the second half of the year won't look much different than the ugly first half.
Now what: This drama reminds me of the trials of fellow mall-based retailer Sears Holdings
What should be noted by investors, though, is that this is a much different situation than with Sears. With Sears, investors staked their hopes on the potential for some financial engineering by Lampert to wring a whole bunch of value out of a struggling retailer. To date, the fact that Sears is a struggling retailer seems to have the upper hand. With J.C. Penney, though, Johnson has recognized that the business needs to be revamped, and the explicit focus has been on making Penney a better retailer.
Obviously, these changes have been painful in the short term, and there's no guarantee that they'll work out in the long term -- particularly if investors lack the patience to see them play out. But if there's a prayer for Penney to turn around, a revamp along the lines of Johnson's seems to be the right move.
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