Please ensure Javascript is enabled for purposes of website accessibility

Ron Johnson Ousted: Can Anyone Save J.C. Penney?

By Steve Symington - Apr 9, 2013 at 3:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

J.C. Penney's board just ousted CEO Ron Johnson and brought in former CEO Myron Ullman. Is J.C. Penney stock a buy?

Well, that didn't take long.

After just 17 months at the helm of struggling retailer J.C. Penney (JCPN.Q), CEO Ron Johnson just got ousted by the company's board.

In all fairness, I suppose you can't blame them for being antsy; J.C. Penney shareholders got absolutely hosed in February after the company released horrendous fourth-quarter results, in which it reported revenue fell 28% and comparable-store sales plummeted a jaw-dropping 32%. All the while, stronger retailers like Nordstrom (JWN 0.58%) and Macy's (M 1.73%) saw comparable-store sales rise by 6.3% and 3.7% in 2012, respectively, while boasting of raised dividends and massive share repurchase programs.

Back to the drawing board
However, if ousting Johnson was supposed to be a good thing, then why is the stock trading down more than 11% as of this writing?

Maybe it's because the board also announced Johnson will be replaced by former J.C. Penney CEO Mike Ullman, who served at the post from late 2004 until November 2011 -- a period during which J.C. Penney stock fell 15%.

As fellow Fool Kevin Chen noted, Chairman Thomas Engibous praised Ullman's "proven experience and leadership abilities," and Ullman said he will "immediately engage with the Company's customers, team members, vendors and shareholders, to understand their needs, views and insights."

But is this really the right time to make such a move? After all, as I wrote last month, Johnson did manage to reduce J.C. Penney's inventory levels by almost $600 million during 2012, which he called an "expensive" but necessary effort that undoubtedly hurt the company's gross margin at the end of the year. That said, it also put the company in the position to start 2013 fresh without the ridiculous inventory overhang that Johnson was immediately forced to deal with when he took the gig.

Is no plan better than Johnson's plan?
What's more, Johnson has said all along this was a four-year turnaround effort set for completion more than two years from now, and in the last earnings conference call he stated that construction on the mini-boutique "store within a store" concepts only really started gaining steam at the beginning of February, with goals of finishing around one-third of 500 stores by the end of May.

Considering the new concepts seemed to be outperforming the rest of the floor space -- by Johnson's account, anyway -- I can't help but wonder whether Ullman has any plan at all to bail out J.C. Penney's sinking ship.

At this point, however, you can bet Ullman wants to distance himself from Johnson's perceived failure, so I believe he likely won't continue the planned remodels as scheduled.

All things considered, I'm saddened we'll never get to see whether Johnson's plans would have succeeded in the end. One thing is for sure, however: Until Ullman can convince the world he really can dig J.C. Penney out of this hole, I won't be going anywhere near the stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$19.36 (1.73%) $0.33
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$22.63 (0.58%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.