Penney shares fall as turnaround turns ugly

The market hates uncertainty, and JCP just delivered it in bulk.

By InvestorPlace May 16, 2012 10:05AM

Updated: 5:13 p.m. ET


By Dan Burrows

When Ron Johnson was the head of Apple's (AAPL) retail stores, he could do no wrong. Now that he's the CEO of J.C. Penney (JCP), it seems very little is going right.

Shares in the midpriced department store chain were down 19.7% Wednesday to $26.75 after the company coughed up a wad of bad news as part of its first-quarter earnings release late Tuesday.

Not only did Penney post a much wider loss than Wall Street was expecting, but it came up short on revenue, too. Margins, meanwhile, have now contracted for five consecutive quarters.

And if that weren't enough to send traders scurrying for the exits, management withdrew its annual guidance. Penney admitted that, nope, it won't hit its profit forecast of $1.59 a share in 2012. All bets are off.

And it gets even worse: In a signal that the company needs to conserve cash, Penney pulled its dividend, which was yielding a healthy 2.3% before the sell-off. By discontinuing the dividend, the company will save about $175 million a year, which Penney said it will plow into its turnaround.

Bottom line? Customers accustomed to bargain hunting don't much care for the changes the former Apple impresario has wrought.

For the most recent quarter, Penney posted a loss of 25 cents a share. Analysts, on average, were looking for a loss of 10 cents a share, according to Thomson Reuters data. Sales dropped for the second quarter in a row, this time by 20% to $3.15 billion. Analysts were looking for sales of $3.41 billion, marking the fifth consecutive quarter in which Penney has punted top-line results.

"Sales and profitability have been tougher than anticipated during the first 13 weeks," Johnson said in a statement. No kidding. Sales at stores open at least a year, a key measure of a retailer's health, fell 18.9%.

Analysts were skeptical that Penney's plans to drop its usual parade of regular sales in favor of everyday low prices would confuse, anger and alienate customers -- and it looks like they were right. As Johnson said, Penney has "work to do to educate the customer on our pricing strategy."

The only thing that appears to be going right is the company's cost-cutting efforts, which are ahead of schedule.

"The company now expects savings to accelerate and exceed the run rate of approximately $900 million at the end of 2012, one year earlier than it had previously announced," Johnson said. Too bad you can't cut your way to growth.

Johnson has unleashed a wrenching, painful turnaround for the retailer -- one that is, to be fair, very much in its early stages. But whether Penney can lure traffic back to stores with a compelling value proposition on its wares is a huge question. It utterly failed to do so in the first quarter -- declining same-store sales, inventory write-downs and falling margins are ample evidence of that.

A while back, Johnson said to expect first-half earnings to be weak, with a rebound coming in the second half. But pulling the annual guidance throws even that into doubt. If this was his first report card, he's barely getting a passing grade, at least based on the market's reaction.

Getting a bead on Penney was tough enough heading into earnings -- Street estimates were all over the map. As Gilford Securities analyst Bernard Sosnick wrote to clients ahead of the report: "JCP is a guessing game about sales and earnings. It may be a day for 'Wow' or hoots of derision."

Well, it looks like the raspberries won and the guessing game has become only more opaque. The market hates uncertainty, and Penney just delivered it in bulk.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

More from InvestorPlace

May 16, 2012 12:28PM

The "new" Penney's is terrible.  It looks like Target and charges like Macy's. 

May 16, 2012 3:42PM
It wouldn't matter if the new pricing strategy did save customers more money.  You cannot beat the rush of getting those free $10 and $20 coupons in the mail.  That is what kept me a JCP customer.  The "everyday" low prices do not entice me to return.
May 16, 2012 1:42PM
I'm so glad JCP began their new pricing strategy. Last year my wife carried a balance on her JCP Card for 9 out of 12 months. Since the new system began, she hasn't charged or purchased anything else from JCP. Thank you JCP!!
May 16, 2012 1:32PM
Having been a JCP shopper for more years than I can remember, I have been to our local store twice since the change. Once was to look around at the 'new' prices were posted, clothes were no longer what I wanted to buy and no real advertising.  Their new ads on TV are just junk and don't tell you a thing.  Second visit I went to buy a 'best value'.....finally found it with no sign, all sizes mixed together and price tags not marked down.  In addition, clothes were scattered all over the floor! They said they didn't have enough employees to keep it cleaned up (I only sae 2 other people in the whole store).  Bye Penney's (unless you learn a lesson from Coke and admit you are VERY wrong!
May 16, 2012 3:26PM
I bought 90% of our clothing needs at JCP for years.  Found 2 beautiful dresses for my sons weddings   They have at the store I shop no dresses let alone any for a wedding.  They no longer carry Gloria Vanderbilt jeans.  Their selections of tops has shrunk to half of what they had and those are only for teens.  The quality of clothes are cheap.  Sad, they were my favorite store.
May 16, 2012 1:33PM
Dont like JCPenney anymore cause clothes r cheap looking & prices r wack.  This WAS my favorite store.  These changes r not working so new CEO you're FIRED!!!!
May 16, 2012 9:45PM
One way for Penney's to save a little money, don't pay your new top exec. a 56 million dollar bonus for his 2 months of work in 2011, November and December. No person is worth that kind of money, especially in this economy.
May 16, 2012 2:59PM
I worked for JC Penney for 10 years as a Senior Merchandise Manager in the 1990's.  I left JC Penney because they where changing their philosophy then.  JC Penny has a identity problem.  Then they hire a CEO of a Teck firm who changes the direction again.   I said the new campaign all a long was going to be a flop.  You gotta understand retail and consumer habits to understand the market. They need to go back to the old philosophy of James Cash Penney.  Number one Customer Service, Number two Quality products, Number three Price.  They lost their brand loyalty.
Hire me as a Consultant,  six months guaranteed I will have them turn-around in the right direction.
May 16, 2012 3:23PM

I loved J C Penneys the way it was. You can never find anything on-line anymore.

And if you happen to find something they never have but like one size in stock. I use

to do a lot of Christmas shopping there, don't know about it this year. Needs to go back

to the way it was.

May 16, 2012 5:08PM
I used to LOVE Penney's and shopped there at least twice a week. I have only been there twice since Christmas after the change and HATE real bargains.  I NEVER go there anymore. I even called and sent an email to corporate headquarters and told them they would go under. It's called GREED. Greedy people wind up with nothing. Why "fix" something if it's not broke. And those thick catalogs they mail out are a waste of money cause I immediately throw them in the bargains!! They also dropped in the quality of their merchandise.  It is NOT Fair & Square...It is not fair.
May 16, 2012 12:47PM
Hate their new no sale pricing. I don't even open their ad e-mails anymore. As far as cost cutting ,they now have cheap sh-t just like Wal Mart. Penny's and Sears haven't learned you can't lower quality and service and keep your customer base. They will both be out of business within five years.
May 16, 2012 1:55PM
Their TV ads and catalogues are worthless. Too much money was spent on catalogues that don't show enough merchandise.They look too artsy instead of informative.  Bring back the old JCPenny. I haven't shopped there since they changed everything. As Donald Trump would say to the new CEO, "You're fired!!!!"
May 16, 2012 4:56PM
I too was a regular shopper @ Penney's, but not since all the changes.  Have been there twice, but cannot find the bargins I am accustomed to seeing.  The new marketing strategy is not working and if they persist with it, J C Penney's will be no more.  Fire the new CEO, Johnson, and get back to what brought customer to the store.........genuine sales & not a bunch of gimmicks.  We are all looking for a good bargin. Period!!! 
May 16, 2012 2:18PM
Penneys used to send out $10 cash flyers for purchases of $10 or more or for purchases of $25 or more for birthday and Mother's Day, etc.  This got me into the store even when I didn't need anything, I would always go use it and spend even more money.  Since this new pricing deal, I have not been into the store except for once when I needed something specifically.   Obviously, this old Apple CEO does not know what he is doing,  Phones, computers, etc are a totally different type product.  Get rid of him and bring back the old Penneys!!!!
May 16, 2012 5:28PM
I am VERY disappointed in JCP!  They used to have great deals and I loved the 15% off survey coupons.  I used to shop at JCP all the time!  I DON'T like the "Fair & Square" campaign!   What a shame, JCP was my favorite store to shop... I don't even bother to stop and look in the store anymore, I just pass through on my way into the mall.... please bring back the old JCP.
May 16, 2012 1:04PM
cut costs and fire the ceo johnson, he stinks the old penney's was alot better.
May 16, 2012 3:10PM
I rarely shop in the stand alone store but have bought a great deal of merchandise online in the past few years.  My biggest problem with the NEW Penney's is that they have discontinued some of the brands I have have enjoyed, particularly Cabin Creek.  I bought several pairs of their pants each season, but this year found that the only type of casual pants they offered in my style was the brand favored by my mother and her retired friends...Alfred Dunner.   I will now spend my money at Land's End or another online retailer who realizes that comfort doesn't mean that I want the polyester pants of a nursing home resident.
May 16, 2012 12:18PM

Who didn't see this one coming....?!!! Of course JCP is losing money. They've tried the same sales model as Saturn. We see how that worked out. People truly want to feel as though they're getting the best price whether they really are or not. Fixed pricing doesn't work for non luxury items.


Coupons, sale flyers and haggling historically works. Unfortunately, JCP did what Coke did....Coke was smart enough to do a 180 back to their regular formula....

May 16, 2012 10:42PM
I used to LOVE Penney's. I HATE the new pricing! I personally LKE hunting a bargain and I think I got better deals that way. I do think the quality of their merchandise has suffered. Kohl's is DEFINITELY my new favorite!!  Classy store with great quality merchandise. They send me great coupons AND I can get $10 back for every $50 I spend many times through the year. It's the thrill of the deal and the fact they make me feel like they truly appreciate my business. I remember when I used to feel that way about JC Penney.   :(     Hope you are reading these comments Mr. Ron Johnson!!!
May 16, 2012 1:16PM

I hate the new setup, dont like new pricing system, PENNEY~S you stink.

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.
100 character limit
Are you sure you want to delete this comment?


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.


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.

123 rated 1
266 rated 2
485 rated 3
660 rated 4
586 rated 5
652 rated 6
640 rated 7
504 rated 8
289 rated 9
159 rated 10

Top Picks

TAT&T Inc9



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.