Have an Opinion on J.C. Penney? Join the Club

There's certainly no shortage of news coming from the J.C. Penney (NYS: JCP) camp lately. The long-awaited investor's day, Sept. 19, hosted by CEO Ron Johnson, added fuel to what was already a decent-sized flame. How topsy-turvy is the action surrounding the former king of the retail industry?

A few notable examples: An analyst lowers his rating on J.C. Penney citing concern with the transition strategy and effectiveness; on the same day another raises it -- for the same reason. Investors listen with bated breath as the CEO shares his vision, initiating a spike of 12% in share price -- followed by a nearly identical drop the following trading day. Not to be outdone, options traders are running amok, with nearly three times as many betting on a decline in the recent share price.

The gist of the arguments -- for and against
If you don't follow J.C. Penney closely, you may be surprised to learn shareholders have enjoyed a stellar two-month run. Since the stock bottomed out at $19.25 a share on July 17, it's up about 37% -- and that's taking the drop on Sept. 20 into account. Not bad.


Supporters of a successful turnaround hang their hats on a few things.

There are a number of analysts and J.C. Penney insiders in Johnson's corner as he attempts to rebuild it from the ground up. Within the past two weeks, analysts from Oppenheimer and JPMorgan Chase have reiterated their respective versions of a "strong buy" rating. Oppenheimer analyst Brian Nagel's opinion is indicative of how disparate the views on the company are. His take on why all those selling J.C. Penney short are wrong goes something like this: The poor results to date are indications of how aggressive the changes at the company have been.

Hedge fund manager Bill Ackman -- an owner of nearly 18% of J.C. Penney's outstanding shares -- continues to exude confidence in Johnson's vision. With nearly $18 billion under management, Ackman's a pro and has to know what he's doing, right? Of course, with so much at stake, it's not unseemly to suggest Ackman may have an inherent bias.

Proponents will also point to the success of J.C. Penney's new stores as justification for their bull sentiments. According to Johnson's discussion on Sept. 19, the store-inside-a-store concept, featuring aisles five feet wider than in its traditional stores, are performing at a clip 20% better than J.C. Penney as a whole. The exclusive arrangement with Disney to open up shops within the "new" J.C. Penney announced on Sept. 19 didn't hurt, either.

But the turnaround has as many, if not more, detractors than bulls. As my colleague Rick Munarriz points out, the positive sales results J.C. Penney refers to are skewed, to say the least.

Then there are the analysts negative on the company. Shortly after Oppenheimer and JPMorgan were sharing their feel-good news, Zacks and Piper Jaffray both lowered expectations to $26 and $25 a share, respectively. And you can toss in the aforementioned negative options trading, to boot.

Finally, as all Fools know, no investment decision should be made without a review of the fundamentals. What's intriguing regarding J.C. Penney's numbers -- and the bulls may have an argument here -- is that it's priced like an upstart retail chain just out of the blocks. Surely, you'd get no argument from Johnson, who is the first to acknowledge that's about right.

Thing is, J.C. Penney is trying to execute a turnaround for the ages, not secure real estate, hire thousands of employees, and address the myriad other responsibilities a true retail start-up endures. Though some leeway is acceptable given the timing of the transition, comparing fundamentals is warranted -- and they paint a dire picture.

Macy's (NYS: M) and Nordstrom (NYS: JWN) are what the new J.C. Penney strives to be when it grows up, while Kohl's (NYS: KSS) provides a better comparison based on where J.C. Penney is today. The problem is, on virtually any fundamental basis, J.C. Penney isn't in the same universe as any of them. Macy's and Kohl's generate sales-per-square-foot 30% and nearly 50% higher, respectively, than J.C. Penney.

Gross margins can't compare with either Macy's or Nordstrom's, and all three competitors provide shareholders with a 2% (give or take) dividend yield. Obviously, J.C. Penney isn't in a position to compete on an income basis right now. If positive cash flow does return, it has more than enough costs ahead of it to absorb before paying shareholders.

Since J.C. Penney is all about opinions, here's another: Based on feedback from avid shoppers, the "new" J.C. Penney is working. And you know what? I think Johnson and the team will succeed, too -- eventually. The good news for investors is there's no hurry, one way or the other.

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The article Have an Opinion on J.C. Penney? Join the Club originally appeared on Fool.com.

Fool contributor Tim Brugger currently holds no securities positions mentioned in this article. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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24 Comments

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Aurelia Bridges

I love most of all about JCP is that their prices are plain and simple. A shirt might cost $5.00 rather than $4.99 which is to be trying to make you think the price is $4.00 instead of $5.00 since the first digit is the $4. I love the new style of the store, and I am 78 years old, but I am not shopping for "old ladies" clothes so it will be perfect for me as I buy my jeans and T-shirts, etc. Thank yhou JCP for being real on the price of a item.

September 29 2012 at 4:36 PM Report abuse rate up rate down Reply
Becky

I have shopped JCP for 40 years and spent thousands of dollars. Loved the fact that I could jump on line and buy things I needed or wanted. Website doesn't work and there is no more catalog dept at my local store. I have things in my shopping bag on line that I cant purchase. I have called the 800 # and the only reply is.... "I will be happy to order for you"My reply is " I dont want you to do my shopping I want to do it myself" Never an explanation of why I cant online shop!!!!!!!!! I have tried to buy things for a few months now with no success. So, when my account is paid off............ I will be closing my account and will shop at Kohls and Macys from now on.

September 24 2012 at 5:56 PM Report abuse rate up rate down Reply
Lucymon2006@optonline.net

JC Penney won't work! Directing sales to younger groups is unfair. What happened to us seniors? I've stopped shopping there all together.

September 23 2012 at 11:23 AM Report abuse rate up rate down Reply
abtvjt

I,too,swore by JCPenneys long time ago.If I wanted a shirt that fit one size fits 2 different sizes,I'd shop at Walmart.If I want coffee while I shop,my Target has a Starbucks along with clothing that stretches one size to fit 2 sizes.JCPenneys use to sell clothing that fit a certain size you were looking for.Dresses had a waist line;skirts had sewn in slips;ladies could select clothing that has quality.Some will say that I am outdated,maybe so,however just because you hang something on a rack DOES NOT mean I will buy it.I still wear the same size as always and I still wear all my OLD JCPenney clothes because they stood the test of time.Imagine I still wear my levis(11years old)maybe faded,most young people have disposed last years jeans already.I am a Huge Disney fan but personally I don't think the company will save Penneys.Once the "big book' catalog stopped coming to the house I basically stopped shopping Penneys.

September 23 2012 at 6:41 AM Report abuse rate up rate down Reply
kimssite

"Based on feedback from avid shoppers, the "new" J.C. Penney is working."

I guess the writer, Mr. Brugger, is getting his upbeat (but misguided) information straight from Ron Johnson. All I know is that at the end of every article I read about what's been happening to J. C. Penney (including this one) are many comments from former Penney customers who are seething about the slow death of the store they really used to like.

Actually, I am one of those former customers. I recently received a routine "How are we doing?" email with Johnson's name at the bottom, and I sent a lengthy response, telling why I was upset and what I felt was wrong with what Johnson was doing, which includes pretty much "everything". But I have a feeling that he has a "full speed ahead" mentality, and he's not going to listen to anyone's advice.

If you want to read about how out of touch this guy is, just Google "The 10 Weirdest Things J.C. Penney's CEO Told Wall Street Last Week". I can only imagine that James Cash Penney, the store's founder, is rolling in his grave.

September 23 2012 at 5:32 AM Report abuse rate up rate down Reply
froggywun

Is the new guy trying to kill Penney's? Because he's doing a very good job of it. Fewer cashiers, eliminating sales altogether, updating their ads with bright colors but not showing what all they have... dropping brands and charging full price for what they have left. I have news for them: People will get their Levis on sale elsewhere! Ditto for Gloria Vanderbilt, which they seem to have dropped.
And then there's the cut in service. Not only have they cut the number of places you can make a purchase, they've gotten rid of catalog. You can still buy online, but pickup in stores is at any register (they have to go get it now) - and now they are going to get rid of cashiers altogether and require you to register your credit cards with them to make a purchase. Fine. You do that. Watching a good company going down the drain is just sad.

September 23 2012 at 2:49 AM Report abuse rate up rate down Reply
froggywun

I have shopped at JCPenney a long time. Granted, I look for sale and clearance items, but I also buy sheets, towels, rugs, etc. and use their catalog (even more online). When I see the bright colors in their ads, it's pretty - but it's not really me, and doesn't seem to attract my daughter. I never linked my trips to sale items because I was often disappointed, but I could, however, find things I liked there.
I found a lot of things there on sale / clearance as I was losing weight, but now that I again need a smaller size I can't find them online, or in the store. I guess they will not be carrying those items... but Kohl's carries some of them, and Ross has also had them.
Now I also hear I will have to register to be able to buy there, and give them my credit card #s, because they don't want to pay people to work there? They've already cut down on staff and removed the catalog cashiers as well as others. You have to find one to get online orders at the store, and they have to go get it. I am afraid Penney's is just teetering on the edge and will soon fall. All because of stupid ideas! They had great merchandise, nice sales, and a little updating would have drawn attention. Their ads could have been given a new look and simplified without changing everything. Having no sales is just stupid.

September 23 2012 at 2:41 AM Report abuse rate up rate down Reply
froggywun

I have shopped at JCPenney a long time. Granted, I look for sale and clearance items, but I also buy sheets, towels, rugs, etc. and use their catalog (even more online). When I see the bright colors in their ads, it's pretty - but it's not really me, and doesn't seem to attract my daughter. I never linked my trips to sale items because I was often disappointed, but I could, however, find things I liked there.
I found a lot of things there on sale / clearance as I was losing weight, but now that I again need a smaller size I can't find them online, or in the store. I guess they will not be carrying those items... but Kohl's carries some of them, and Ross has also had them.
Now I also hear I will have to register to be able to buy there, and give them my credit card #s. Maybe that will not be a problem for me since I have a JC Penney card, but I'm not in the habit of registering credit cards at stores on the off chance I'll find something to buy there. I never leave my CC with an online store. And the young often don't have a credit card, just an ATM with a Visa logo... and that would give Penney's access to their bank account. No way would I recommend that to my daughter; it is just too risky. Twice already we've had letters about data stolen from stores.

September 23 2012 at 2:34 AM Report abuse rate up rate down Reply
Bruno

The Doors had a song.... The End

September 23 2012 at 1:54 AM Report abuse rate up rate down Reply
mlefer5

You have got to be kidding if you think this "new" concept of yours is going to sell at any age --as you seem to only be concerned with the young. Sir, the young like sales too as they are the ones starting out and watching their pennies even more as most have student loans to worry abou as well as other "new" expensest, not that JCP seems to worry about that little detail. I have been to the "new JCP" a couple of times and walked out without a purchase. There is a a new JCP being built less than five miles from me and everyone was more excited about the new Wegmans (a super supermarket). Why don't you open your eyes to the economic times and the real consumer's needs. Your new store concept might attract some to "play" with your gadgets and get a soft drink, but I doubt there will be the constant sales of times gone by at JCP. I am sorry to say we will be saying "JCP, rest in peace" because that is what your doing to your store.

September 23 2012 at 1:34 AM Report abuse rate up rate down Reply