J.C. Penney (JCP) Looks for a New Leader... Again
The drama at troubled retailer J.C. Penney (JCP) picked up again recently, after reports broke that its recently re-appointed CEO, Mike Ullman, might be headed out the door soon. Ullman, who originally served as CEO from 2004 to 2012, was brought back in April after controversial CEO Ron Johnson's turnaround plans resulted in a disastrous plunge in same-store sales, revenue and earnings. Allen Questrom, who was Ullman's predecessor between 2000 and 2004, is now rumored to be Ullman's successor.
What does this latest management crisis mean for the retailer, and is there any reason to still believe that the company can successfully bounce back? Daily Chart
The reign of Ron Johnson, the former head of retail at Apple (AAPL
), was a tumultuous one that confused and alienated customers and investors alike. During his 17 months at the helm, Johnson attempted to create a "store within a store" boutique shopping environment to highlight its more popular brands. He also initiated expensive renovation and rebranding initiatives. But Johnson's worst move was eliminated all special discounts with "everyday low prices" similar to Wal-Mart (WMT
) and Target (TGT
). That tactic was ill suited for a department store environment, which uses special sales to attract shoppers and boost store traffic. The minimalist rebranding of the stores as "JCP" and new ad campaigns alienated shoppers. During Johnson's tenure, same-store sales declined 25%, while e-commerce sales plunged 50%. Johnson also burned through money quickly in his rapid overhaul of the chain, which caused expenses to outpace revenue on top of negative margins and earnings per share. Aware that J.C. Penney was teetering on the brink of the abyss, the company's board brought back Mike Ullman in April. Ullman had a fairly successful run as CEO until the financial crisis in 2008-2009, from which the company was unable to recover from. Ullman suspended Johnson's costly plan to install 100 in-store branded boutiques by 2015. He also brought back the retailer's "high low" strategy, in which products are initially sold at a higher price when an item is popular, then cleared out through steep discounts after its popularity wanes. Investors were willing to give Ullman a chance, believing that the back-to-school season in August and September could help the retailer generate some much needed revenue growth. Now, J.C. Penney's board is clashing with hedge fund manager Bill Ackman, who owns 18% of outstanding shares. Ackman reportedly wants former CEO Questrom, who was also CEO of Federated (now Macy's), Neiman Marcus and Barneys New York, to replace Ullman. Questrom is often called a "merchant prince" by analysts for his famous turnaround skills. However, Ron Johnson was also known as an expert at retail revivals, turning around Target and Apple before he nearly sent J.C. Penney over the edge of a cliff. Shares of J.C. Penney rallied briefly after reports of Ullman's departure surfaced, but plunged on Friday. The stock is now down 42% over the past twelve months, and is currently deep in the red. Revenue also declined 16.4% year-on-year last quarter. Other News About JCP J.C. Penney: TheDeathSpiralScenario
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Published on Aug 12, 2013
By Leo Sun