Shares that were hovering around $3 per share fell to the May 29 opening price of $2.30 each, with the company’s market cap falling to $722 million.
Penney earned $254 million during its last Christmas quarter, on revenue of $4 billion. Its long-term debt had fallen below $4 billion, less than half its assets, there was cash in the bank, and cash flow was positive.
For the April quarter, reported five days before Ellison’s resignation, there was same-store sales growth of 0.2%, despite a late start to the season and very cool weather. Total sales were down, only because the company closed 141 money-losing stores, and the net loss came to $69 million, or 22 cents per share. Furthermore, the company now expects sales growth of 2% — and nearly break even on that.
Find an Apparel Guy
The results for JCP stock were not great, but they weren’t the disaster analysts made them out to be once Ellison resigned either. Since taking over in August 2015, Ellison managed to steady the ship, streamlining operations, improving online performance and maintaining its relationship with Sephora, part of LVMH Moet Hennessy Louis Vuitton SA (OTCMKTS:LVMUY), the European luxury conglomerate.
He was frank about what he failed to do, saying, “I’m not an apparel guy.” Ellison, who came to Penney from Home Depot Inc. (NYSE:HD) and then left for Lowe’s, failed to bring any clothing pizzazz to Penney, which is, at its heart, a clothing store.
The task of the board, led by chair Ray Tysoe, is thus a lot simpler today than it was when it found Ellison. Get an apparel retailer, make him/her CEO and maintain the improvements Ellison put into place. Tysoe said the board will seek someone with “strong merchandising experience.”
Specifically, JCP stock needs someone who knows how to sell clothes to millennial women. Ellison had improved the company’s athleisure operations, bringing in Nike Inc. (NYSE:NKE) and Fanatics, a unit of privately-held Kynetic, an online retailer. But the “fashion” part of the company had lagged.
Another option is to sell the company.
Tysoe made his name in real estate, and the company still has some value there. Separating the store operations from the mall real estate where it operates is essential to the company’s future.
If remaining real estate assets were spun out into a real estate investment trust (REIT), which might sell out bad locations and possibly buy better, in-town locations, you’re looking at a company with sales of $12 billion per year, with decent online operations, strength in home goods and a relationship with a luxury goods maker. Get an innovator, say from Martin Patrick 3 in Minneapolis, and you’ll have a company someone would want to buy. Ellison had Penney doing pop-up shops under the name Jacque Penne, and that could be another potential way to get the store into hot, urban markets and boost JCP stock.
The Bottom Line on JCP Stock
J.C. Penney today is a fixer-upper in a bad neighborhood, but the bones are sound.
Ellison was not a failure at Penney. He streamlined operations, brought in affordable luxury and tried some things that are working, like appliances.
What he was unable to do was to crack the new urban markets, where younger consumers live and work in tight spaces, where they prize convenience and where they’re developing a taste for fashion as they mature.
That doesn’t mean it can’t be done. Penney’s still has the assets to do it. It just needs the right leadership.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
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