JC Penney (JCP) is looking to raise $1 billion to fund store conversions and stay solvent as the company tries to find its way in a post-Ron Johnson period. One thing the Apple Guy can claim to his credit: he didn’t preside over a series of huge stock buybacks that, in hindsight, look pretty dumb.
In 2004 through 2006, Penney, feeling flush from having sold its Eckerd drugstores chain and realizing after-tax cash of $3.5 billion, bought back $4.9 billion of its own shares. It bought some 105.6 million shares, at an indicated average value of $46.40.
The boys in finance, based on the 2004-2006 stock chart above, must have felt pretty good about themselves. Emboldened, even. So, in 2007, Penney bought back another 5.1 million shares for $400 million, or $78.43 a share average cost.
And in 2011, with the stock trading in the mid-$30’s, it must have seemed a real bargain. So, Penney laid out $900 million for 24.4 shares, an average cost of $36.98.
Having a little something set aside for a rainy day – oh, say, the day you fire a CEO who alienated many of your customers and sent your sales into a tailspin – seems like a good idea. Wall Street types have long been in love with efficient balance sheet models, which encourage debt and buybacks and, in the case of Penney, in 2013 likely results in hideous dilution of its shareholders. A risky strategy calls for a bulletproof balance sheet, not one already levered up.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.
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