Another day another beating for J.C. Penney (JCP). Shares fell 8.9% on Tuesday after a research report from JPMorgan (JPM) suggested the troubled retailer was at risk of running out of money before its turnaround efforts take hold. The analyst said proceeds from J.C. Penney's recently completed secondary share offering enabled management to order goods in sufficient quantities for the holiday quarter but fell short of providing the company with an "infinite treasure chest."
Shares of J.C. Penney have dropped more than 40% since Breakout outlined the potential death spiral scenario facing the company. What concerns J.C. Penney vendors is the a combination of the 27% revenue drop since 2011 and $1.3 billion loss in 2013. Nothing personal but most companies are reluctant to ship goods to retailers losing more than a billion dollars a year on less than $13 billion in revenues.
If misery loves company, the plight of Sears Holding Corp (SHLD) must be making J.C. Penney investors giddy. Shares of Sears got beaten up last week after it emerged that the company had sold profitable locations to fund other operations. Regardless of last week's story, Sears has been reorganizing itself almost continuously since the company merged with Kmart in 2004.
As can be seen in the Investor Relations portion of Sears' website, the company has eliminated more than 1,200 stores since 2007. They've also posted five straight years of negative same-store sales and managed to lose more than $4 billion in 2011 and 2012 alone.
Hitha Prabhakar is among the few retail experts who dare to go on record saying neither Sears nor J.C. Penney are going to wipe out shareholers. Sure Sears sold off some assets last week, Prabhakar concedes, but that shouldn't have been a surprise. Last week wasn't even the first time Breakout made the observation that Sears was something less than dedicated to merchandising. Sears can keep chopping itself up for years, Prabhakar maintains the WSJ.com story just caught investors in a bad mood.
As for J.C. Penney, it's obviously in merchandising flux. After alienating its customer base during a wildly ill-advised revamp under former CEO Ron Johnson, the company is slowly pulling itself together. For those who need visual proof Prabhakar suggests a visit to the ladies shoe department.
"Accessories like shoes are what are is sustaining department stores, especially when it comes to J.C. Penneys," Prabhakar offers. "I think they are concentrating on the shoes department, accessories department, also apparel but teen apparel."
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