I'm a little surprised that you don't see the truth in what I said. Have you ever shopped from a catalog? In an average year, I probably spend more over the internet than at a physical store, but it has its limits.
That's a good list, and I appreciate your candor. Let me respond.
1. You're generally right about internet shopping, but it's difficult to satisfactorily shop style and appearance related products than, say, refrigerators. The vast majority of JCP merchandise does not lend itself to Internet distribution. Keep in mind that Internet shopping is basically a modern version of catalog shopping. The Internet will no more replace brick and mortar stores than catalogs did 50 years ago.
2. Single purpose retailers cater to a specific segment, but don't generally have the volume to offer the best value. Retailers are constantly monitoring their offerings to determine what resonates, and altering their assortment to follow customer preferences. If the department store concept was not successful, Macy*s would not be growing as fast as it is.
3. Yes, JCP probably caters more to an older crowd. But the average age of the population is increasing, so one could thing of this as the growth market. Young people are also having trouble finding jobs.
4. Ron Johnson was probably the worst thing JCP could have done, and it is best to avoid losing customers, but I would be reluctant to put too much stock in some homespun retailing advice. Marketing is constantly improving the ability to communicate with potential customers.
5. I can't argue that more debt is bad, but some of the debt was to pay for store upgrades. JCP stores now put Sears to shame.
There should be focus on three measures: Revenue, gross margin, and SG&A. If only one marks a significant improvement, any weakness in the other two will be acceptable. For instance, if sales markedly improve but margins are weak, it will be assumed that margins will rise in the longer term. If margins are strong and sales weak, the soft revenue will be blamed on attempts to push pricing too hard. All will be looking for confirmation of the lower than expected SG&A; however, a strong sales or margin level can be used as an excuse for a higher SG&A. The bottom line number is not as important as an indication that the turnaround is confirmed by improvement in one or more of this important triad.
Other income statement values, including interest interest, depreciation expense, pension expense, and restructuring cost are already known with a fairly high degree of certainty.
As long as the Q1 numbers show progress, JCP will trade more in line with stable retailers than continuing to attract large numbers of speculative, short term traders. When JCP becomes a solid investment, thirty day average volume will be around 7 million per day, not anywhere near the 25 to 30 million per day we're now churning.
I made a forecast of Q1 results this morning. There's considerable potential error in estimates for sales, gross margin, and SG&A; but in the net I expect gross margin to offset SG&A. If such occurred, that would be an important turning point for the company.
I expect net income to be (1.00) per share, based on pension of (18), depreciation (150), interest (100), and restructuring (37) charges. Since depreciation is non-cash, the cash loss will be about (0.50). An additional negative cash flow will result from capital expenditures, which are estimated at (60), which equals about (0.20) per share.
This is shaping up as a repeat of last Friday. Names like TSLA and NFLX are being slaughtered along with JCP. A declining rate on the 10YR indicates reduced growth expectations. I'm not sure how long this will continue.
I am equally surprised that JCP is not selling for $15 as I am that Sears and Radio Shack are still standing. I went to a Radio Shack yesterday as the easiest way to get a cheap 120VAC relay, only to find that they don't carry them anymore. About the only items that Radio Shack now carries anymore are cell phones, batteries, and cables. Leaving the Radio Shack I noticed that Sears had set up an appliance outlet next door with about 1000 square feet of selling space. Both chains are being managed by persons that have no idea what they're doing.
JCP carries a large selection of compatible merchandise in an attractive setting. JCP sales were up by 2% for Q4; whereas, Sears was down by over 9%, and gaining speed on the downside. Sears is being cannibalized by Lampert because even he can see what the future holds. A Sears turnaround would generate a much smaller return than a complete dissolution of the existing of the existing organization. Sears is actually offering a number of stores on its web site.
I expect that JCP will eventually see a big boost when Sears finally bites the dust, which could happen any day. I suspect that the only reason they haven't shut down already is that dumping so much real estate so quickly would dramatically reduce the recovery for the stockholders. So Lampert is engineering a slow death.
JCP and Sears should never be thought of as being similar in any respect.
I suspect that many short term traders have stop loss orders in place, which the computers see activated and can use to manage the small profits on thousands of trades for which HFT is known.
Today's trading pattern appeared on many days leading up to the Q4 report. It is characterized by heavy selling during the first half hour, followed by stabilization and often a measure of recovery. Since the smart money avoids trading early in the day, I have to rule them out as being important in establishing this pattern. That leaves the computers and speculative traders leaving a long position or entering a short. If speculative traders were in control, I'd expect some premarket softness. Today there was virtually no premarket activity, but volumes exploded on the open. That points to the computers as the most likely culprit.
We all know about high frequency trading guided by algorithms that are continuously tuned to reap most advantage. Two things become obvious. Much of the daily trading is the result of one computer algorithm fighting another computer algorithm. Secondly, computers could easily be programmed to conduct automated bear raids. I have to wonder how much, or little, of today's action actually stems from a rational decision by a human investor.
It was pounded at the open by short sellers. No longs would sell that many shares at once; only those who wanted to depress the stock price would do so. Today's action is very similar to the pattern which lead to the drop all the way to $4.90 earlier in the year.
Many of the early shorts will repurchase shares during the remainder of the day to load up for the next assault. If you compare the daily volume for JCP with similar companies, it is many times greater. That volume difference represents the percentage of shares that are traded for the purpose of a day or week hold.
JCP is tied into some pretty impressive organizations. Ullman is the chairman of the Dallas Federal Reserve Bank, and Sadove is chairman of the National Retail Federation. Does it make sense that JCP is heading for the rocks when its people have such good credentials?
No, I don't see the distinction. Once one accepts that the market is not efficient it precludes automatic association between market moves and fundamental factors. Even if the market is, on the average, just slightly inefficient, that does not mean that all market moves are equally inefficient. Rather, some moves could be completely efficient and others completely inefficient. Efficiency is like pregnancy, either you're pregnant or not. One can never be slightly pregnant. In science as it should be in economics, it only takes one experiment to invalidate a thesis.
Alloro, please note that JCP began falling out of the gate; whereas, the CBL conference call didn't start until 10:30 eastern time. By 10:30, JCP was lower than its eventual close for the day.
If those news items explain Friday's fall, I expect stabilization in the stock price and perhaps a rapid recovery. Neither issue is truly bad news.
Macy*s, or course, took market share from JCP. But going forward the greater fear is that Macy*s will lose share back to JCP, rather than take additional share away.
I anticipated that JCP could close as many as 100 stores going into 2014, and was somewhat disappointed at the closure of only 33. Taking into account for the difficulty in quantifying the incremental value of a single store, JCP probably decided to postpone additional closures to await clarity. Ullman apparently takes baby steps that are constantly checked for resonance with the customer. JCP may also be playing a game of chicken with the mall owners hoping to improve their lease terms.
If one considers that Sephora has been placed into about 600 stores out of over 1000, there must be a large number of marginal locations. Keep in mind that the 33 closures will help the JCP bottom line by a significant amount. Therefore, additional closures, properly timed, could really help the overall financial picture.
Mess, below is an extract from an interesting piece I found on the Internet:
"It is no secret that two of the three winners of this year's Nobel economics prize disagree – after all, they are economists. But Robert Shiller has taken the tiff with Eugene Fama over the efficiency of markets to a new level.
"Highlighting what he sees as a mismatch between Fama's findings and his theories, he suggested his fellow laureate must feel like a Catholic priest who has discovered God does not exist.
"While Shiller holds that investors, being human, can be swayed by psychology, Fama contends markets are always efficient, with people incorporating all available information into prices."
It appears that I'm in good company.
Economics has always been faced with the difficulty of being unable to test a hypothesis in a controlled experiment. Those that hypothesize have to wait for conditions to emerge that enable a theory to be tested, which generally takes many years. As a result, the field moves ahead very slowly, and is punctuated by much disagreement.
The developing situation in Ukraine is a wildcard which could become the most important element affecting the markets. In a resurgence of the cold war mentality, Putin appears to be destabilizing Ukraine enough to assure that it doesn't fall into the hands of NATO. He will not stop until he accomplishes his objective, so the outcome will depend on the reaction of Europe and the US. I expect this situation will become much worse before it gets better.
Fear engendered by the conflict in Ukraine will keep the 10YR rate low, at least as low as 2.5%. Growth stocks will continue to fall in price.