J.C. Penney is in Deep Trouble

Warren Buffett once famously said that if you put a manager with a great reputation together with a company with a lousy reputation, the reputation of the lousy company will remain intact.

Ron Johnson was recruited from Apple to turn Penneys from a loser into a winner. He brought every day pricing to the retailer and has tried to convert Penneys from a mass merchant of soft goods to a boutique of sorts.

There's only one problem. The customers obviously don't like what J.C. Penney is doing. They're voting with their feet and they're staying away from the retailer in droves.

As is the case with free market competition, customers are in charge and not management, and customers are voting against the changes underway at J.C. Penney.

Sales Slide at Revamped J.C. Penney has the story:

 "J.C. Penney Co.'s sales went from bad to worse.

The department-store chain, in the middle of a long and painful turnaround under former Apple Inc.  retail executive Ron Johnson, said its sales fell 27% in the three months that ended in October, a sign the company continues to stumble as the key holiday season approaches.

The drop was worse than analysts watching the company had feared . . . .

Mr. Johnson, who joined Penney as CEO a year ago after heading up Apple's vaunted retail operations, said the company wouldn't diverge from the strategy he laid out last January of sharply limiting discounts in favor of broadly lower prices every day. . . .

Analysts . . . recently called Penney's no-promotion pricing strategy confusing to customers, noting that the company advertised 30% off clearance items in an email last month. Deutsche Bank also pointed to a recent in-store $10 coupon, free haircuts for kids and an offer for free family photos throughout November, saying Penney is "backtracking on its no promotion strategy, confusing customers, and we, therefore, remain skeptical of near-term improvement in business trends."

On Friday, Mr. Johnson said in a statement that Penney "is really a tale of two companies," the old and the new. "By far the largest part of our store is the old J.C. Penney, which continues to struggle and experience significant challenges as evidenced by our third quarter results.
However, the new JCP, centered around the shop concept, is gaining traction with customers every day and is surpassing our own expectations in terms of sales productivity which continues to give us confidence in our long term business model.""

SUMMING UP

As the all important holiday selling season approaches, J.C. Penney may be headed for extinction. according to one analyst. JC Penney Enters the Death Throes Phase has his take on the company's woes:

"This morning, JCPenney turned in one of the worst earnings quarters in the history of publicly held retail companies. It was that bad. . . .

All you really need to know is that JCPenney is running out of time, money and ideas. There isn't a bright side, only varying degrees of murky.

None of which means the stock is going to zero in a straight line. Down 42% in 2012 and about 75% since 2007, there's a decent amount of bad news in the name. . . .

For most investors, the only smart move is to keep paddling and wait for JCPenney to die."
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To which I will only add the following: Amen.

Thanks. Bob.