Is JC Penney really headed for a comeback?

Wall Street sees huge upside in the beleaguered retailer.

By Jonathan Berr Jun 15, 2012 12:27PM
Image: Shopping (© imagewerks/Getty Images/Getty Images)Remember when J.C. Penney (JCP) CEO Ron Johnson was a genius?

After he was hired to run the retailer earlier this year, The Wall Street Journal gushed that he was "the man who helped create the mystique surrounding Apple Inc.'s successful retail operation." He even got kudos for standing up to anti-gay-rights critics for sticking by corporate pitch woman Ellen DeGeneres.

Fast forward to May, when the beleaguered retailer stunned Wall Street by reporting a quarterly loss that was double what was expected, suspended its dividend and said it no longer expected to meet its GAAP guidance for the year.

As a result, the Journal remarked, "Ron Johnson is getting a taste of what it's like to run a retail operation without world-beating products, and so far it is not pretty."

Johnson's strategy of emphasizing everyday low prices instead of sales was deemed a failure. Investors dumped JCP shares, which have plunged 33% in the past year. But some analysts aren't ready to throw in the towel on the once-venerable retailer just yet.

Wall Street has an average 52-week price target of $33.21 on the stock, almost 40% higher than where it currently trades. As CNBC.com noted Friday, Citibank retail analyst Deborah Weinswig is confident that the company will turn around even though many consumers are confused by Johnson's strategy.

"What we want to watch is what happens in August, where 47% of their product is new and their marketing strategy is tweaked," Weinswig is quoted as saying. "August is where we really start to write the report card."

Whether Johnson's hubris will sow the seeds of his demise remains to be seen. Wall Street doesn't always realize that genius is not a quality that can be transferred by CEOs from one company to another. It may be too soon, however, to consider Johnson a failure. The company's biggest shareholder, Pershing Square Capital Management, is backing him, at least for now.

Johnson seems to have a vision. He wants to add stores in metropolitan areas to compete with Macy's (M) and Kohl's (KSS), which are currently eating's J.C. Penney's lunch. 

Investors love turnaround stories in theory but hate them in practice, as they are often messy. Strategies rarely work as imagined the first time, and corporate reputations get damaged along the way.

Johnson should learn some lessons from Boeing (BA). The aerospace giant was pilloried in the press and on Wall Street for the long delays of its 787 Dreamliner. Those problems, though, were eventually fixed, and shares of Boeing have surged more than 10% over the past six months. Under CEO Alan Mulally, Ford Motor (F) avoided government bailouts and has seen its shares surge more than 200% in the past five years.

The transformation from Wall Street "hero" to "zero" can occur at warp speed. Reversing the trend is a slow, agonizing process, but at least some investors are betting that it might happen to J.C. Penney.

Jonathan Berr does not own shares of the stocks listed here.  Follow him on Twitter@jdberr.

 
68Comments
Jun 15, 2012 1:49PM
avatar

As a former employee of JCPenney, I was so sad to see the store where I was employed for almost 30 years to get into so much trouble.

 

It is not the same store, not even close to it.  I do not like the way the new advertisement is handled and them not having sales is not going to bring people in, even me. 

 

 Lets get back to the good quality of merchandise also, I have seen such a turn around in the clothes and makes it look like they are being purchased at a Walmart or Target.  JCPenney can do so much better than they are doing if they listen to the customers who made them what they were.

 

Even with the Red Tag Sales they were in much better shape and making money than they are in today.  Come on Managers and CEO's get things going again in the right direction.  JM

 

Jun 15, 2012 3:00PM
avatar
The problem is the new CEO with a flawed marketing vision............this is not Apple.   Apple was easy.....they have great unique products.....JCP has what everyone else has............so why shop there if the prices aren't better .....like having a "sale" or other incentives........Not buying any of their stock until he goes!
Jun 16, 2012 12:59PM
avatar
Yes JCP put their neck in the noose and I hope it tightens so much they die! They fired so many of their older workers its not funny. I'll never darken their door again.
Jun 15, 2012 11:14PM
avatar
Screw JCP for the way Ron Johnson has handled all this transformation. Hundreds of good employees with many years with the company were either forced into early retirement or their jobs were eliminated . I hope the company goes belly up for what its worth.
Jun 15, 2012 1:12PM
avatar
Wow - Boeing & Ford as comparison's?  How about mentioning the failures of trying to turn around a retailer? There aren't many success stories there - once shoppers leave it is extremely difficult to get them back without discounting especially in today's economy - consumers are extremely price conscious - the JCP customer wasn't a Macy's customer to start with, they were more a Kohl's, Target, Wal-Mart shopper - the strategy of putting in name/specialty store-in-a-store (Sephora, Liz Claiborne) is going to be difficult especially when traffic is down 20% in the stores - the ones considering putting their name in a JCP store may reconsider and unless you have top notch established brands who is going to venture in to shop? I believe they have a large debt payment coming due 8/1 (right after 2nd qtr prelim #'s should be available) - unless Ackman continues to back them they may have trouble finding funding to complete their turnaround. I think Ackman is banking on if it doesn't work he's covered with the value of the real estate and the JCP store dies off. Hire someone who knows his customers, Apple could have put stores in homeless shelters and made money.
Jun 16, 2012 4:20PM
avatar

went in today to check for a pair of running shoes - didn't have my size - checked the prices on some things I had bought before about a year ago - layered tee that I got on sale for $9 was now everyday low price of $15 - Island Shore shirt I paid $20 for was everyday low price $25 to $30 -

Not very crowded for a Father's Day weekend - didn't see any same sex couples shopping either LOL

Jun 16, 2012 12:55PM
avatar

 The buyers have changed the clothing line and it seems to look cheap. I don't care who they have as a spokesperson for advertising just bring back the quality and you will have me back as a shopper.

Jun 17, 2012 12:46AM
avatar
In order for JcPenny to be relevant again, they have to do a couple of things. First off they have to do SOMETHING about their stores, their stores are outdated, inside and out. New paint and store layout goes A LONG way. 2nd. they need to talk to their buyers, aka the companies that sell their clothes at JcPenny, becuase compared to stores like Macys, forever 21, and even Target and etc. JcPennys clothes are a little outdated, more than a decade of outdated clothes lol. I went there the other day and saw a pair of overalls on sale............. NO BUENO ! but im all for a successful turn around, I hope sears and K-mart jump on board as well because all 3 stores are in the same boat with the same problems.
Jun 16, 2012 2:08PM
avatar
Penney new pricing suck and so does there quality. Why give up quality for low pricing?
Jun 16, 2012 9:06AM
avatar
i went to the store at 33rd and 6th ave---it looks bad for jcp---few shoppers
Jun 16, 2012 10:06PM
avatar

I remember a year or so ago, my wife and I got one of JCPs '$15 off any item $15 or more" (or some great $$ figure like that). We went to get her a small item for $15 or so and ended up walking out spending over $200 on a jade necklace for my daughter's 21st birthday

 

BAD MOVE JCP.....bring back the customers...bring back the marketing strategy.

Jun 15, 2012 2:06PM
avatar

JCP will never get another dime from this household...Kohls reaps the benefits.

Better quality,...Fair and Square!

Jun 17, 2012 7:58AM
avatar
remember the Coke/Clasic Coke lesson.When you have made a mistake, the quicker you correct it,the less damage it does.Ron Johnson should not be making decesions based on emotion
Jun 16, 2012 10:40AM
avatar

JCP has put the noose around their own neck with their choices in advertising and their spokespeople.

 

I will never shop there again.

Jun 16, 2012 4:21PM
avatar
JC Penney is loyal to nothing or no one they only care about numbers not what the customer wants or their employees or employees inputs . It used to not be that way . JC Penney used to care about all this and thats what made them a great store. You dont fix what aint broke and Penneys is not a Target or a Walmart and thas what made them so special and made people wanna shop there. You bring in some pencil pusher that knows nothing about your company and hasnt actually spent time on the sales floor and interacted with thousands of customers or employees and this is what you get . As far as treating their employees well , well you can ask the houndred or so that were forced into early retirement or had their jobs eliminated after years and years of service to them what they think . I hope this new priceing system is the downfall of a once great comapny.
Jun 17, 2012 11:47AM
avatar
the reason i wont shop at jcpnney.
for the long and meritorious service the two ceo's put in over the last year and a half, they pocketed 100,000,000 dollars.
Jun 16, 2012 8:43PM
avatar
I don't find Penneys prices to be a good price. You know what would get me into Penneys to shop is when I would get coupons that they would mail out. I remember the great coupons get 10 dollars off if you spend 10 dollars or more. Those coupons sure got me in the store. They used to have such awesome deals on cloths. Not anymore. I haven't stepped foot in Penneys since they changed, but one time. I walked out not buying anything. It's funny how they were doing so good with handing out coupons so why change. Hey Penneys. Woman love coupons. Who doesn't. Send me coupons and I'm back in  your store shopping. Bring back down the prices the way they used to be. Why stop a good thing.
Jun 17, 2012 12:06AM
avatar
This company aired a tv commercial that SCREAMED at the audience for virtually the entire ad!  Any company that dumb doesn't need my business.

Jun 15, 2012 5:47PM
avatar

I hope Ron Johnson reads some of these posts.  In my humble opinion, my local JCP sells a lot of very plain clothes for men at average prices.  A St. John's plain polo shirt can't compete with a more updated shirt at Target for the same price. 

I've also been in the area where they sell Keurig stuff and JCP's everyday prices are still higher than most (except Kohls - what is Kohls thinking?).  Macy's, who usually is higher priced in all departments is lower priced i this area. 

If the prices are the same as others, JCP has to offer something more.  Personalized service?  That would be different from the rest.  Macy's used to do that and I loved it.  If I was in the clothes dept someone would show me possible selections and it was very helpful.  They weren't pushy at all.  Whatever happened to that type of service?  Ron, are you listening?

Jun 17, 2012 7:46AM
avatar
JCP, was built on being a family,store and have become a queer rights advocate.They should realize that,in order to attract 10% of the market they are aleinating 90%.STUPID MOVE
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
280
280 rated 2
473
473 rated 3
639
639 rated 4
637
637 rated 5
662
662 rated 6
640
640 rated 7
498
498 rated 8
287
287 rated 9
121
121 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.