JC Penney stock plunges in wake of CEO change

JC Penney falls as retailer ousts Johnson, replaces him with predecessor Ullman

Associated Press

NEW YORK (AP) -- J.C. Penney's stock tumbled to its lowest point in more than three years on Tuesday, a day after the department store operator surprised Wall Street by announcing that it was replacing CEO Ron Johnson with his predecessor, Mike Ullman.

THE SPARK: Late Monday Penney disclosed that it was ousting Johnson and rehiring Ullman, who was CEO of the chain for seven years until November 2011. Johnson had only served 17 months as CEO.

THE BACKGROUND: Penney's CEO announcement came as a growing chorus of critics including a former Penney CEO, Allen Questrom, called for Johnson's resignation as they lost faith in an aggressive overhaul that included getting rid of most discounts in favor of everyday low prices and bringing in new brands.

THE ANALYSIS: Morgan Stanley's Kimberly Greenberger feels that the CEO change is a good thing for Penney, saying in a client note that Johnson's missteps cost the chain 25 percent of its sales and that he was "tone deaf" to its customers' behavior.

The analyst said that there's still challenges ahead, as the retailer will be trying to boost sales with a group of private-label brands that she believes have little to no meaning in today's market.

"Johnson's path of aspiring to a new shopper did not work, but Penney struggled to stabilize sales before Johnson's arrival," Greenberger wrote.

The analyst expects Ullman to hit the ground running, having previously worked for Penney. She's also encouraged that Ullman's approach to improving execution and stabilizing financials includes gathering input from customers, vendors, employees and shareholders.

Greenberger kept an "Underweight" rating.

Penney does not comment on analyst reports.

SHARE ACTION: Shares of Penney dropped $1.67, or 10.5 percent, to $14.20 in midday trading. The stock fell to $13.90 earlier in the session, the lowest level since March 2009. It is currently the biggest decliner on the S&P 500 on Tuesday. For the year to date, the stock is down 19.5 percent.

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