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J.C. Penney taps Home Depot executive as CEO, big challenges ahead

Customers ride the escalator at a J.C. Penney store in New York in this file photo from August 14, 2013. REUTERS/Brendan McDermid/Files

By Nathan Layne and Sruthi Ramakrishnan

(Reuters) - J.C. Penney Co Inc (JCP.N) named Home Depot Inc (HD.N) executive Marvin Ellison as its new chief on Monday, ending an 18-month search but barely allaying investor concerns over problems facing the money-losing department store chain.

Ellison, 49, an industry veteran credited with reviving Home Depot's U.S. business, will join J.C. Penney as a board member in November, and succeed Myron Ullman, 67, as chief executive in August 2015.

Analysts generally gave Ellison high marks, pointing to his track record as an executive vice president at Home Depot where he oversaw some 2,000 U.S. stores. His tenure included a strong growth period starting in 2010. Prior to joining Home Depot in 2002, he spent 15 years at Target Corp (TGT.N) in various roles.

"Ellison has a successful track record of simplifying store operations, improving customer service, and ... is widely known for being a great leader and motivator," BMO Capital Markets analyst Wayne Hood wrote in a note to clients.

But after an early rally of more than 5 percent, J.C. Penney's stock slid back to close down 0.4 percent at $7.09, reflecting investor worries over the depth of the challenges facing the incoming CEO.

Last week J.C. Penney, which has lost money for three straight years, cut its third-quarter same-store sales forecast due to a "difficult retail environment" and left some analysts under-whelmed by its plan for revamping stores.

UBS analyst Michael Binetti pointed to Ellison's lack of experience working with fashion items and other merchandise handled by department stores. Benetti said one of JC Penney's biggest challenges is fending off growing competition from inexpensive apparel retailers like T.J. Maxx. (TJX.N)

"They found a good guy who seemed to be well-liked at Home Depot but for me it didn't change what I think are some fairly insurmountable problems for JC Penney over the next few years," said Binetti, who cut his rating on the stock to "sell" from "neutral" on Monday before Ellison's appointment was announced.

Last week J.C. Penney unveiled steps aimed at generating $2 billion in incremental sales growth over three years, including a renewed focus on its private label brands, and bolstering home goods and online sales.

The steps were meant to build on a nascent earnings recovery under Ullman, who was CEO from 2004 to 2011 and was brought back in April last year to largely undo the work of former CEO Ron Johnson, who triggered a sharp drop-off in sales in an attempt to take the retailer upmarket.

J.C. Penney said Ullman will remain with the company as executive chairman for one year after Ellison assumes the CEO post.

(Reporting by Nathan Layne in Chicago and Sruthi Ramakrishnan and Ramkumar Iyer in Bangalore; Editing by Savio D'Souza, Jilian Mincer and Richard Chang)