J.C. Penney Stock Loses 13%, Drops to Lowest Price Since March 2009

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JC PenneyBy ANNE D'INNOCENZIO, AP Retail Writer

NEW YORK (AP) - J.C. Penney Co. (JCP) executives may be confident in the department-store chain's everyday low pricing strategy, but its investors are panicking.

The company's stock fell more than 13 percent on Monday -- the biggest percentage decline by far among big companies in the S&P 500 for the day. Penney stock lost nearly $3 on Monday to close at just under $18, its lowest price since March 2009 when the United States was in a recession.

The drop follows Standard & Poor's Ratings move to lower Penney's credit rating deeper into junk status on Friday. And that came on the same day that the company reported its third consecutive quarter of big losses and sales declines since it decided earlier this year to get rid of hundreds of coupons and sales each year in favor of predictable low prices every day.

It's the latest sign that Wall Street isn't any happier with Penney's pricing than Main Street is. Investors had pushed Penney stock up 24 percent to about $43 after the company announced the pricing plan in late January. But customers haven't warmed to Penney's pricing, and investors have grown cold on the stock. With Monday's drop, Penney's stock has lost nearly half of its value this year.

Penney, which announced its plans for the holiday shopping season on Monday, did not immediately return calls seeking comment about its stock price. But during an investor meeting on Friday, executives assured investors that the company has enough money to continue with the strategy.

CEO Ron Johnson, the mastermind behind Apple Inc. (AAPL) stores who took the top job a year ago, also reiterated his confidence in the plan and said returning the company to growth is "Job. No. 1." And he touted the early success of the makeover Penney began this fall of 700 of its 1,100 stores with 10 sectioned-off shops inside each that feature different brands such as Levi's and Penney's new JCP line of casual clothes.

"The CEO was selling the hope, but now investors are looking at what the company will look like in the first half of the year," said Brian Sozzi, a chief equities analyst for research firm NBG Productions who follows the company. "Investors are digesting the reality."

The reality is that customers still aren't embracing the strategy Johnson rolled out on Feb. 1. The goal of his plan was to wean customers off of the deep discounts that they'd become addicted to, but that were eroding profits.

He got rid of the nearly 600 sales Penney offered at various times throughout the year for a three-tiered strategy that permanently lowered prices on all items in the store by 40 percent, offered monthlong deeper discounts on select merchandise and periodic clearance events throughout the year.

But as Penney's coupons and sales disappeared, so did its customers. The company's losses and sales declines began to pile up. Johnson made some tweaks to the pricing plan - he got rid of the monthlong sales events in August. But that didn't help.

On Friday, Penney reported its third consecutive quarterly loss that missed Wall Street estimates. The company, based in Plano, Texas, said it lost 56 cents per share, or $123 million in the quarter ended Oct. 27. Revenue dropped 26.6 percent to $2.93 billion in the quarter. Analysts had expected a loss of 15 cents a share on revenue of $3.27 billion.

Revenue at stores open at least a year - a key measure of a retailer's health - plummeted 26.1 percent. That's higher than the 17.6 percent drop analysts had been expecting for the figure. Meanwhile, the number of customers coming into the store dropped 12 percent from the year-ago period.

On the news, Penney stock fell 5 percent, or $1.05, to close at $20.64 on Friday. That led Standard & Poor's to lower its corporate credit rating on Penney's credit, which was already in junk status, by two notches after the market closed.

S&P's credit analyst David Kuntz said in a statement that although he believes Penney's outlook is stable because liquidity will remain "adequate," the company's performance may weaken further over the next 12 months.

"Credit metrics have deteriorated substantially and we believe that they could erode further over the next few quarters," said S&P's credit analyst David Kuntz in a statement.

Now analysts, many of who once used words like "revolutionary" to describe Johnson's plan, are having doubts. Citi Group's Deborah Weinswig, who had lauded Penney's pricing plan, on Monday slashed her fourth-quarter earnings estimate for the company to 30 cents from $1.30 and said she expects Penney to continue to post declines in revenue at stores opened at least a year through the first half of next year.

Michael Exstein, an analyst at Credit Suisse downgraded Penney's stock to "underperform" from "neutral" on Monday. Exstein cited a survey that Credit Suisse had done on Monday that showed that out of 17 retailers that suffered a total sales decline of between 15 percent and 25 percent, only four were able to recover the lost revenue. The remaining 13 were either acquired by private equity firms, went bankrupt or merged with the other public firms.

Exstein wrote that Penney "must find a way to significantly slow the sales decline within the next six months."

Burt Flickinger III of the retail consultancy Strategic Resource Group agrees that Penney has to improve sales, especially during the critical holiday shopping season in November December, a time when many retailers can get up to 40 percent of their revenue. But after Penney announced its plans for the shopping period on Monday, Flickinger said he has doubts that the company can compete with its peers.

The company said it will have its only sale of the year on the day after Thanksgiving Day known as Black Friday. But Penney said it will open at 6 a.m., much later than some of its rivals that are opening on Thanksgiving Day or at midnight on Black Friday. And it's using a gimmick to lure customers in: Penney plans to give out more than 80 million buttons to customers from Black Friday to Christmas Eve. Each button will feature a unique code on the back, which can be entered on Penney's website for a chance to win a vacation.

"The holiday season could be catastrophic for Penney unless it becomes more competitive more quickly," said Burt Flickinger III of the retail consultancy Strategic Resource Group.

Indeed, some Penney shoppers have already defected to other merchants. Jeannine Soster, 48, of Mentor, Ohio, used to shop four times a week for her four children, ages 14 to 20. But since Penney got rid of discounts and coupons earlier this year, she hasn't bought anything there. She now goes to Old Navy (GPS) and Wal-Mart (WMT) for her children's clothing

To make things worse, she decided to give Penney a second chance in September. That's when she stopped by her local Penney store hoping to get $6 T-shirts, but she just found $20 versions.

"I used to be able to get sales and coupons," said Soster, who works in real estate. "I have no desire to go back to J.C. Penney unless they switch back."







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361 Comments

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Lady

JCP made their choice. I made mine. I cut up my card affter the Mother's Day ad and like bullrider, was disappointed with the Father's Day ad as well. JCP has not gotten 1 cent from me since and I share my opinion. JCP stock says it all. I hate it as well because if had been my favorite store for more than 40 years.

December 08 2012 at 2:38 AM Report abuse rate up rate down Reply
bullrider

I hate to see the big old time companies hit hard times, but after Penneys had the Father's Day ad with a pair of gay fathers in it I said not one more dime will I spend there. Adios. I hope there are enough gay fathers to take the place of the real ones like myself who were turned off by Penneys glorifying 1/100th of 1% of the 'father' population.

November 19 2012 at 10:51 PM Report abuse rate up rate down Reply
HARRIET H

I worked at JC Penneys for 5 years. They are like family. They also had the best loungerie -ambrielle- . Plus a fabulous juniors dept. Plus fashion jewelry was real nice. Anyhow sales were slow I was let go. I understand but now Belks who is located at the same mall is sending out all the same coupons that Pennys did. Belks is ******* in all Penneys loyal customers. Belks does not even have the good loungerie that pennys has. To GET BACK the LOYAL shoppers you need to send out CHRISTMAS ///HOLIDAY COUPONS . Act like your helping the consumer but in actuality you will be helping the store survive this recession . WE ARE STILL IN THE RECESSION --thats why shoppers need an incentive to go to your store ..EX-10.00 or 25.00 is great !!!! Then we go to the store and spend 200.00 when we only had planned to spend 50.00 and use the coupon. BRING THE COUPONS BACK TO SAVE JC PENNEYS !!!! This is sad Peneys made it thru the depression it has to make it thru this recession/fiscal mess!!! The coupons will bring us AL BACK !!! Faithfull Shopper !!!!! Merry Christmas Advice from my heart ...HH

November 15 2012 at 2:37 PM Report abuse rate up rate down Reply
drum2u

JC Penneys credit card raised thier interest rate to 26.9% even though I have been a customer for at least 30 yrs and have great credit rating, I cancelled the card and I will no longer shop there on principal alone.

November 14 2012 at 6:14 AM Report abuse rate up rate down Reply
SweetNancy44

When comparing them to Kohl's or Macy's, I would rather shop JC Penney any day! The prices at Penney's are cheaper and the clothing and other products are more to my taste than Kohl's. Honestly, I really miss Mervyn's...anyone else?

November 14 2012 at 3:36 AM Report abuse rate up rate down Reply
Jo Ann

I have a card for Pennys however, Im not happy with the prices, far to high for me. $40.00 for infant jeans and hoodie. No thanks. Every thing is overpriced. No sales incentives, no coupons. No thanks. Paying off card and cutting it up.

November 14 2012 at 3:31 AM Report abuse +1 rate up rate down Reply
bingomlou

I used to always shop at Penney's , but not in a very long time. I just don't feel the prices are as low as they say...I like my coupons & sales. He needs to change back the way it used to be, or he will run the store into the ground. They had the commercial where you could take anything back without a receipt, but they only give you $4 on whatever clothing item it is !!!! There are better stores out there to shop at.

November 14 2012 at 2:55 AM Report abuse +1 rate up rate down Reply
good day mate

Jc Penney made a big mistake. Should have got rid of Ron Johnson few months back, when his new plan didn't work the first time. Should have went back the way you were before. Now, it's too late to play catch-up. Wonder how much Penney's pay Ron Johnson for his failure.. It's a shame to see Penney's going under. Guess another store bites the dust.

November 14 2012 at 2:15 AM Report abuse rate up rate down Reply
bassmnsc

JC Penney is going to wait til they self destruct before they do something.They should have left priceing and sales alone.Their stores are hard to shop with the new layout.Ron Johnson needs to go fast.They waited too long now that the holidays are here.Now they have to wait and find ways to minimize the damage

November 14 2012 at 2:01 AM Report abuse rate up rate down Reply
rd1950

Doesn't this idiot Ron Johnson get it, your idea is terrible and it didn't work, give it up.

November 14 2012 at 1:46 AM Report abuse rate up rate down Reply