Dismal second-quarter results don't suggest the company is
on the mend. However, is the department store chain really doomed? Retail and
turnaround experts make the case for J.C. Penney's comeback.
"The company still has brand equity among its core
consumer, "says Michael Appel, president of Appel Associates, a turnaround
and performance improvement consulting firm. " Appel believes that although J.C. Penney has
tough competition, there's nothing to suggest the company can't right itself.
"In the moderate price point there's so much competition," Appel
said. "That doesn't mean with the right management and the right strategy
and positioning and right product they can't do it."
J.C. Penney reported a worse-than-expected net loss of $586
million, or $2.66 a share, chock full of extraordinary charges pulling the
number down. Net sales slumped 12% year-over-year, and gross margin fell to
29.6% in the quarter. The company plans to end the year with $1.5 billion of
cash.
CEO Myron 'Mike' Ullman noted on the company's earnings call
that the reversal of initiatives by its former chief executive Ron Johnson will
take time - and money. Essentially reversing initiatives to reinstate things
like sales and promotions instead of the everyday pricing, clearly identifiable
staff and checkout stations as well as a newly launched home section that
already was not resonating well with customers and needs modification all
requires investment.
Admitting Mistakes In Retail, Ackman Remains Feisty
With his billion-dollar bets on J.C. Penney and Herbalife
situated far south of where he expected them to be, it has been increasingly
clear that Pershing Square Capital Management honcho William Ackman would have
“some splainin to do,” as Ricky used to say to Lucy. Yesterday he did so in a
23-page letter to his shareholders replete with disclaimer and notes. “Clearly,
retail has not been our strong suit, and this is duly noted,” he said,
referring not only to Penney, from whose board of directors he “voluntarily”
resigned earlier this month after yet-another spat in public with other members
over the performance of a sitting CEO, but also to past failures Borders and
Target. “He said he may exit Penney, where he owns 39 million shares
and is the company’s biggest investor, but would not say when. At Target, he
stuck it out for 19 months after losing a bitter and expensive proxy fight, he
reminded investors,” reports Reuters’ Svea Herbst-Bayliss.
As for Borders, Pershing “took a $200 million bath,” as the
New York Post’s Mark DeCambre puts it, when it went belly-up in 2011. “Borders
was a big mistake on the buy,” Ackman told “CNBC producer and Wall Street
insider” Maneet Ahuja for the “hedge-fund tome,” The Alpha Masters: Unlocking
the Genius of the World’s Top Hedge Funds, DeCambre reports. “Retailing is for
retailers. It’s not for hedge fund managers,” Erik Gordon a law and business
professor at the University of Michigan, tells Herbst-Bayliss. “Successful
retailers have spent their whole lives in the business. Ackman finally figured
that out.”
