It's Just too Early to Judge
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There have been many critics of the strategy that the CEO of J. C. Penney (NYSE: JCP) Ron Johnson is implementing to turn things around in a compelling effort to revive the old department store and take it back to a profitable position it once had.
Herb Greenberg, an analyst for CNBC placed Mr. Johnson as the 3rd worst CEO of 2012 saying “…over promising and under delivering” was the main reason for this uncomfortable award. If we take in consideration the fact that Mr. Johnson had said that a turnaround was not a one year deal but one that will come in different stages taking up to three years and that 2012 was the very first one for this effort, then, that statement of under delivering seems inadequate, at least for now.
As I wrote in an article that was published on December 10 we have to give management the time to get everything in place before we judge their performance. I know that JCP's stock has been punished this year so much it has lost about 40% YTD and about 63% from its 52 week high of $43.18 back in February.
This have been due to the declining sales over the last few quarters and the deteriorating fundamentals of the company, I get it! However, as I wrote on an article titled "Will Coffee Help This Department Store Turn Things Around?" Even as the fundamentals are deteriorating, they’re not far (comparing balance sheet information) from Kohl’s (NYSE: KSS), having the same cash per share ($2.39) as of the most recent quarter and similar debt-to-cash and debt-to-equity ratios should give some support to the stock by the value investors.
Also, CEO Ron Johnson has given us the numbers –which by the way look promising- from the new and renovated stores. The “shops” are reporting almost double on sales-per-square-foot (this information can be found on page 8 of the JCP Q3 2012 earnings conference call transcript available here) when compared to the old J. C. Penney.
New partnerships are being announced; Martha Stewart (NYSE: MSO), a lifestyle content product company, and one that attracts many customers, is one of them. Starting in 2013 the company has unveiled its “shop” priorities which include among others; Martha Stewart, Dockers, Haggar, Disney, Giggle, Carter’s and Sugar Shack.
In a new step towards this direction, J.C. Penney has hired Brandon Tonniges who was a vice president of brand senses division at Abercrombie & Fitch (NYSE: ANF) to become JCP’s director of visual merchandising. Mr. Tonniges was the person behind the renovation of Abercrombie’s stores, from the old layout to the one we currently see and some even enjoy. That sense of a nightclub along with young employees and the constant spraying of the cologne keep attracting young customers which are the main users of the products they sell.
The kind of job that J. C. Penney requires to turn the corner is more complicated than just appealing to a younger audience, but, we can see how management is serious about it and that they are gathering all the talent available to make it happen.
Though, it’s still too early to see if those changes are working or will even work at all, I will give Mr. Johnson the benefit of time. Big things take time, and this turnaround is certainly nothing less than big.
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