Penney J C Inc (NYSE:JCP)

CAPS Rating: 1 out of 5

The Company sells family apparel, jewelry, shoes, accessories and home furnishings to customers through department stores and Direct (Internet/catalog).

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Player Avatar TMFBent (99.81) Submitted: 2/28/2013 10:44:25 AM : Underperform Start Price: $17.00 JCP Score: +11.23

Johnson and Ackman make the perfect hubristic duo, too egotistical to realize how wrong they are. JCP will veer back to the price wars and lose them.

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Member Avatar MKArch (99.72) Submitted: 2/28/2013 2:08:13 PM
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Seth,

I know you like following retailers in general and have an impressive track record with them so it scares me when you are on the other side of a retailer bet but I'm just curious if you have looked at the results from the stores within stores that are the actual transformation that Johnson and Ackman are betting on? I'm going by memory from the Q3 presentation but JC Penney was doing something like $180/ s.f. in sales pre-Johnson, the better retailers like Macy's were doing over $200/ s.f.. Sales from the legacy J.C. Penney slumped to $105/ s.f. but the 11% of the floor space that had been converted to the stores within stores was doing something like $225/ s.f. with something like a 25% average increase in sales per s.f. for brands that had a presence before the transformation in the new format vs. pre-transformation.

Just reading your pitch it sounds like you might be in the camp that thinks the pricing strategy is the heart of the transformation and the failure of everyday low prices means a failure of the entire transformation strategy. In reality the only reason Johnson went to everyday low prices is because the better brands that he wanted to attract to the stores within stores didn't want to be associated with the constant promotions that they felt devalued their product. If you read the cc transcript they will only be doing promotions for their own brands in the return to promotions and they'll be doing them weely instead of daily. In other words they're going to try to get more out of the legacy store in wind down but they also want to protect the better brands they are bringing on board for the stores within stores. IMO what they are doing is a little more subtle than a too little too late attempt to go back to a constant promotions strategy that it sound like you might be thinking is the plan.

Since they've only converted 11% of their floor space to the new store within a store format and they only have results for a short period of time I can see not being ready to buy into this concept yet. I'm just curious if you looked at the results of the stores within store and aren't buying it or you missed this and are just basing your thumbs down on the miserable overall results to date.

Member Avatar TMFBent (99.81) Submitted: 3/1/2013 11:20:44 AM
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Arch, I think Johnson's throwing in the towel and getting back on sales shows that he's beginning to understand how wrong he was. But I think he's still got too big an ego to see reality. His whole "that's not a sale, that's a new best price" thing offers the worst kind of reality-challenged corporate Jargon.

I don't think the "mall within a mall" thing will work. I think Johnson has a hammer that's a half-empty, glass-cube store, and he figures JCP has lots of nails.

I don't think they have the money to get this done and there's no way to remake JCP as an upscale retailer. It is what it is.

I believe current results show the general trajectory. I entered the pick yesterday only because it came to mind. I thought I'd red-thumbed it a while ago.

Member Avatar MKArch (99.72) Submitted: 3/2/2013 9:39:41 AM
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Thanks Seth, I definitely don't take your opinions lightly but I hope you're wrong on this one. I think the results from the 11% of floor space converted to the stores within stores is impressive albeit a small sample and a short time frame. The rest of the store is certainly a mess right now but it's in run off. I cringe when I hear Johnson try to sell everyday low prices and I wouldn't touch this thing with a ten foot pole if that were the actual strategy but in reality it's a means to an end. Johnson can't get the better brands he wants to attract to the store within a store when they are constantly promoting because these brands don't want to be associated with the constant promotions. His awkward defense of everday low prices is just trying to make the best of a necessary evil IMO. I'm not sure if you listened to his explanation of how they are returning to promotions but it might be a little more subtle than you think. They're going to promote their own brands but not outside brands unless it's part of the brands own national promption. They're also going to cut the promotion down from 3 per day pre- Johnson to once a week. Anyway from what I remember you seemed to focus on following retailers in general. I repect your opinion in general and particularly so in regard to retailers so I thought I'd pick your brain on this one. I'm hoping that this is one of the rare times you are wrong Seth. I miss my HG time and I'm hoping to get back on board soon.

Mike

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