J.C. Penney Company Inc (NYSE:JCP) has been to hell and back in the last five years. A misguided revamp under former CEO Ron Johnson sent comparable sales down 25% in 2012, and the company has since been trying to claw its way back to breakeven. Though it has made substantial improvements since then, first under Myron Ullman III and now under Marvin Ellison, the company is still operating at a loss and facing many of the same headwinds that peers like Sears and Macy's are struggling to overcome.
Which of course begs the question: Where will J.C. Penney be 10 years from now? Considering the wild ride it's been on in recent years, there's no obvious answer. We pitched the question to three of our top retail analysts. Here's what they had to say:
Sean Williams -- Around, but struggling: Where will J.C. Penney be in 2025? My guess is still an anchor store at your local mall; but that doesn't mean the company will be in great shape, either.
J.C. Penney has come a long way in just two years. Losses in 2016 will be cut by more than half from 2015, and by 2018 and 2019, the company is expected to return to profitability. It has accomplished this seemingly miraculous feat by catering to its current and former core customer, meaning discounting has returned to Penney's stores. It's also focused on omnichannel strategies that improve the shopping experience. Boosting its online presence, while rethinking the brands within its stores, has helped solidify its recent performance, though expectations from Wall Street and investors have been greatly lowered.
What J.C. Penney doesn't have an answer for is how to establish a brand identity. Consumers associate J.C. Penney with discounts, but there simply isn't enough of an exclusive brand pull to draw consumers to Penney's stores. What we might see in the future is another round of Penney's attempting to partner with strong retail brands in an effort to build a level of exclusivity with consumers. Penney's has done this to a small degree with its Martha Stewart products, but it's going to need a brand with far more momentum to give the retailer a positive brand identity.
Where does that leave J.C. Penney by 2025? Likely still saddled with a lot of debt and struggling to expand because of stagnant margins tied to its discounting. It's still not a particularly attractive investment, even with Wall Street's expectations as low as they are.
Daniel B. Kline -- It has a future, but only a small one: J.C. Penney has been a sad decline. Former CEO Ron Johnson's botched tenure did long-term damage, and the brand has not recovered.
Before Johnson decided to make such peculiar moves as eliminating sales and charging ahead with new concepts without testing them, the retailer was a steady, albeit boring player. Customers knew to expect value, reasonable quality, and a selection of merchandise aimed at middle-class shoppers.
The former CEO cast all of that aside in his botched attempt to make the chain something it's not.
"There is nothing good to say about what he's done," Mark Cohen, a former CEO of Sears Canada, told The New Yorker in March 2013. "Penney had been run into a ditch when he took it over. But, rather than getting it back on the road, he's essentially set it on fire."
It's not easy to put out that sort of fire but J.C. Penney manged to do so without becoming a total loss by bringing back former CEO Myron Ullman III, who actually preceded Johnson in the office, and reclaimed his job after his successor's spectacular failure. He wasn't picked for the position because he would bring about dynamic change. Ullman got his job back because it was hoped he could bring stability back and get the company's former audience to return.
Now, Ullman has ceded the CEO office to Marvin Ellison, another retail veteran with a solid, steady, and not in-in-any-way revolutionary background. The new CEO should continue inching the company back from the brink. He'll continue Ullman's strategy of playing to the core and building on what once made the brand great.
That won't make it bigger. It's a strategy built around strategic closures and downsizing, but it's a plan that will likely keep a version of the company going for a long while, which at the end of Johnson's reign seemed unlikely.
Jeremy Bowman -- Out of business: Considering the deep hole J.C. Penney has put itself in, and the unfavorable market forces facing mall anchors and department stores like Penney's, it's most likely that the once-venerable retailer will be out of business in 10 years.
Two factors tend to contribute to retail bankruptcies: a large debt load, and a failure to change with the times. J.C. Penney embodies both of these problems. Though momentum is in the company's favor after it posted 6.4% comparable sales growth last quarter, it is still on track to report a net loss of around $400 million this year.
Liquidity is not yet a problem as the retailer has cash and equivalents of over $600 million in the bank and more than $2 billion to borrow from a line of credit if needed, but interest payments are a concern. The company has over $5 billion in debt and $400 million in annual interest payments, or about 3% of annual sales. For an ailing retailer like Penney's, that can mean the difference between profitability and a loss.
Finally, the macro climate should present increasing challenges for the company. E-commerce will continue to threaten the middle-class malls where Penney is most often found, and mall traffic has been declining for several years now. Penney's will ultimately need to close a large number of its 1,100 stores in order to survive, and even that may not be enough, as 75% of its mall locations are in "Class B" or "Class C" malls, developments with weak traffic or that are in full-on decline. Currently, 400 of its stores are in rural areas that the company considers low-priority; less than 20% of its locations could be considered prime.
With the pressures of mounting losses, its large debt obligation, and changing retail dynamics, odds are that 10 years from now, J.C. Penney will be out of business.
Daniel Kline has no position in any stocks mentioned. Jeremy Bowman has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.