More specifically, I wondered if activist investor Bill Ackman could have been right when he asserted his firm could make more than 15 times its money from his investment in the company. After all, as the proud owner of more than 18% of the struggling retailer's outstanding shares (according to Pershing Square's most recent 13-F filing), Ackman certainly has a lot to lose if he's wrong.
As I previously noted, however, if Ackman's prediction eventually comes true (and considering his cost basis at the time), that would put J.C. Penney's price per share near $350 -- or nearly a 20-bagger from last Friday's closing price of $17.69 per share.
A sinking ship
Unfortunately, J.C. Penney's bull case took a licking after its seemingly disastrous earnings announcement last week, in which the company told investors it suffered an incredible net loss of $427 million in the fourth quarter alone. When all was said and done in 2012, J.C. Penney's net loss for the year came to a staggering $985 million.
To be fair, no one actually expected the results to be good. However, those numbers were so shockingly bad they managed to drag the stock down as much as 21% during last Thursday's trading. Sure enough, 2012 revenue fell 28% as comparable-store sales plummeted a jaw-dropping 32% in the fourth quarter and 25% for the year. What's more, this looks especially bad when we consider that competitors Macy's (NYSE:M) and Nordstrom (NYSE:JWN) saw 2012 comparable-store sales actually increase by 3.7% and 6.3%, respectively.
If that weren't enough, Macy's added insult to injury by highlighting the fact that it achieved its fourth consecutive year of double-digit earnings growth, and Nordstrom followed by simultaneously raising its dividend and authorizing an $800 million share repurchase program.
Meanwhile, J.C. Penney CEO Ron Johnson remained unwilling to provide guidance to help us predict when the company's sales might eventually stabilize, thus giving otherwise patient investors one more reason to jump ship and swim to a sturdier vessel.
Is there still hope for the bulls?
Of course, that raises the question: When, if ever, might investors expect to see J.C. Penney rise from the ashes?
After all, in January, Ackman highlighted the fact J.C. Penney is less than a year and a half into its planned four-year turnaround, and the company ended 2012 with $930 million in cash on its books after generating positive free cash flow in the fourth quarter.
In addition, as Johnson highlighted on the earnings call, J.C. Penney managed to reduce inventory levels by almost $600 million during 2012 -- an "expensive" but necessary effort that showed up in gross margin at the end of the year, while at the same time allowing the company to begin 2013 with a clean slate. As Johnson elaborated, "It is incredibly comforting to me to be relieved of the massive inventory overhang with which we began last year."
Furthermore, management indicated that J.C. Penney's mini-boutique-style concepts have continued to outperform as before -- a great thing when you note that the existing shops have historically posted 20% higher comps when compared to the rest of each store's traditional floor space.
Luckily for investors, there may be a light at the end of the tunnel: According to Johnson, construction started in earnest at the beginning of this month and is well under way, and the remodel of more than 30% of J.C. Penney's floor space in over 500 stores is expected to be finished by May. By any measure, I'd say that counts as solid progress toward Penney's previously stated goal of fully transforming its entire fleet of more than 1,100 stores by 2015.
But really, a multibagger?
As a result, it's a safe bet that J.C. Penney shareholders are probably in for at least another quarter of pain before anyone can realistically expect any tangible signs of improvement. In any case, when May comes and goes and summer arrives, investors will be on the edge of their seats to see if J.C. Penney's much-heralded remodels are showing any signs of translating success to the company's bottom line.
In the end, I'm still not holding my breath for J.C. Penney to become a multibagger in the near future; this is a multiyear speculative bet, and there's plenty of risk involved in holding its shares. But I stand by my previous assertion that hope remains for J.C. Penney to eventually make its triumphant return to sustained profitability. If that happens, you can be sure today's investors will be glad they grabbed the stock when they had the chance.