Buy the one Ackman should have

The buffoonery of Ron Johnson opened the floodgates for every other retailer.

By Jim Cramer Apr 10, 2013 8:50AM

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Should we care about J.C. Penney (JCP)?


I think you need to care about any large retailer that is on the precipice. Any company that employs thousands of people and used to have $19 billion in revenue is worth following as that's a visible chunk of the U.S. retail economy.


Of course that's not the principal reason it's been so talked about. We have cared because Ron Johnson, a fresh face from the outside -- from Apple (AAPL), no less -- came in to clean up the mess made by former CEO Mike Ullman -- at least that's what the new party line was -- at the behest of a hedge fund manager Bill Ackman, who had basically taken over the company.


The daring -- some people would say the arrogance -- of Johnson and his backer Ackman created a polarizing set of expectations that led to the total failure and collapse and the ultimate comeuppance -- Johnson's being fired, only to be replaced by the allegedly disgraced Ullman.


All that is history now, and while we can speculate about how this debacle may have hurt the performance of the self-promoting Ackman, who cares? What matters right now is that there's a land grab of retail sales as I genuinely believe that J.C. Penney could go away. I don't want it to go away, but the buffoonery of Johnson opened the floodgates for every other retailer.


Woman looking at mannequins in boutique smiling Michael Hitoshi Digital Vision Getty ImagesSo how do we play it? First, I totally dismiss the notion that J.C. Penney is worth buying, which is something I heard in conjunction with talk of a private equity takeout. These rumors don't take into account that the debt instruments surrounding J.C. Penney are signaling that the cash flow is dropping, perhaps precipitously here, at a moment where Penney has, most recently, $930 million in cash vs. $2.9 billion in debt. That's totally unsustainable given the minus 30% comp numbers, numbers that can't easily be reversed by Ullman. You can't own the common stock. It is still a sell, and I think even Bill Ackman knows that because this is precisely the kind of company he would be selling short if he weren't so darned long.


The biggest winner has been Macy's (M), and I think a huge chunk of what is left in sales will still go the way of that chain.


Wal-Mart (WMT) and Target (TGT) have gained, but the newfound sales may not be as meaningful to them. Both have been doing fabulously, and Wal-Mart again hit its 52-week-high. It's been an amazing performer. I also like TJX (TJX) -- my charitable trust owns it -- which I find to be similar to Penney's both in the sales it runs and in the merchandise it sells. It should be bought here.


Kohl's (KSS) should be a big beneficiary because of its similar merchandise, but that once-terrific growth retailer seems to have lost its way. I think that Gap (GPS) works too, as its clothing profile is very similar to the clothes that Penney sells. Go check Penney out, you will agree.


I worry about PVH (PVH) because it is a big partner of Penney, although I know that Manny Chirico, the terrific CEO, is never going to let himself be held hostage. But if Penney is doing as poorly as I think, then anyone who has sent them merchandise is at risk.

Why is this a major focus right now? Because we are going to get same-store sales from all of these retailers and we know from Manny Chirico that March was soft because of cold weather. So you may get your chance to buy these after we hear the numbers.


To me, the cheapest of all of these is TJX. It just boosted its dividend by 26% and announced a buyback of at least $1.3 billion. Put simply, it's the one Ackman should have bought. He didn't. But you can.

 

Cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long TJX.

 

 

 

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46Comments
Apr 10, 2013 9:47AM
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Drowning in a sea of debt.  Target eats Penny's' lunch every day.  Let em go.  Management does matter.  The idea any CEO can step in any framework and make it work is just another soon to be proven stupid myth.  We hear so many complain about how Unions just pay people stupid amounts of money and never seem to amount to much.  Look at the crop of CEO's making 10 to 60 million a year and ask how that Union is doing.  This free trade socialism idea tries to make everything sound so easy.  Marketing  is an Art  and a skill.  Just bringing the cheap crap in from overseas and laying it on a table with a price tag on it is losing its' luster.  I am actually happy to see this retailer take it on the chin along with Wall Mart.  People are ever changing individuals and those retailers/importers that try and cubby hole us all into the same boring mold is now being proven very very ineffective. There is a good reason the style and marketing by American capitalism has prospered for so many years.  Think of customers as sophisticated changing individuals in all business interaction and you will be much more successful.  JMHO
Apr 10, 2013 9:18AM
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this all goes to show that the "financial formulae" people (classic MBA's) don't know jack about how to run a retail store. 

 

it's a chick store!  guys don't buy there!  it's not inviting and only sells clothing and make up! 

Apr 10, 2013 1:00PM
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I'm a little concerned for Obama's health. If he cut his smoking like he cut the deficit he is probably up to 4 or 5 packs a day by now.
Apr 10, 2013 9:52AM
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Let me give you both sides of this... Big Box Retail is in sinking quickly in quicksand of its own making. There is essentially only one program- massive amounts of knock-off items sitting on shelves and racks until they exceed the seasonal marketing duration and begin the clearance process. For the record, the majority of items only sell at discount or at clearance. More and more, the whole range of sizes for the item reach the clearance racks. Arbitragers are buying and liquidating that stuff but retailers don't see it as inventory-easing, they see it as pariah-like activity. Try to imagine JCP stuck with two years worth of dormant goods on their shelves and burgeoning backrooms of even more. That said, the core problem is the knock-off. We are grooming disaster by the likes of Wal-Mart where shoes and support garments are made on rails. A lifetime of bad shoes choices makes a disabled person. So is it "good for America" to import garbage? No. Sadly, the high quality that once was America's hallmark is actually the Land of Opportunity for us. That's the flipside of Ron Johnson. If we dumped the "big box" and returned to specialized retail that backed itself with representations and warranties (that aren't an after-market racket), the goods would not really cost much more than the knock-offs but it would create jobs and business opportunities that generate cash flow, revenues, incomes, taxes and restore our country to prosperity. The lesson here is-- ban college degrees as job requirements or necessities and let's get back to hiring authorities that actually know what they're doing. Further, stop Ben Bernanke TODAY from funding our destruction by printing fiat money and giving it to the markets. Let's see some of these long-dead business platforms fail so Free Enterprise and American Ingenuity regain legs and restore hope. Got a degree? Go start an enterprise. If you can't do something good for America, get out.
Apr 10, 2013 2:05PM
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Did anyone really think anyone but the middle class was going to pay for this economic mess planned, created, and executed by the elites in this country?  As I said earlier the really last few big Unions that seems to have the ability to weather all the economic tyrrany are the Electerds and the Corporatists.  Imagine that. In this condition we have youngsters that have no positive futures, ability to use an earned education, afford to have a family, and we have these CEO's pulling down 15 to 20 million a year.   And now Gramma is being asked to get by with less.  For you Union haters this is what labor not having a voice really means.  Sure Unions went to excess, but do you not see the hypocracy from the other side?  And in the long run it means even a more difficult struggle because now it will require violence to change anything.  Any ideas about why they want to take our guns away?  Stupid people do Stupid shidt. 
Apr 10, 2013 12:55PM
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Hey! First Lambert(sp?)  at Sears & now this guy from APPL at JCP.  It appears that managing retail does require some special skills.  (OMG, whatever happened to Montgomery Ward?)

 

A Clue:  Years ago a friend in marketing at Sears noted that strip malls were hurting them because single focused stores there went head to head with one of their departments in a big store. Multiply that by many strip malls...get the idea.

 

That doesn't hold up entirely as the big guys spent several decades driving small & medium sized guys to the wall.

 

Clearly, a host of smart & rich people would dearly love to solve this  puzzle.

Apr 10, 2013 12:19PM
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LOM is like a drive-by shooter these days..........  What does that tell you?

Apr 10, 2013 11:12AM
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Imagine all the puts that will expire worthless.  I read a couple weeks ago one order bought $12 million in puts.  OOuch.
Apr 10, 2013 11:05AM
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Watching this market reminds me of the old Chuck Berry song, "Go Johnie Go".  Looks like 4 L. of Moneys' 15,000 prediction is just about to come true.

Apr 10, 2013 1:56PM
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Most retailers don't need an excuse to be stupid.
Apr 10, 2013 12:59PM
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We are up about 150 on the Dow....The Fed's notes have brought new money into the markets; the question is, can we sustain this until 1600 hrs and beyond.?...Is good to be up but also always be cautious....We've seen it all before...More later.
Apr 10, 2013 12:46PM
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More drivel by the cramoron ....

Btw anyone heard from that bouchedag abs (angry ball sucker) ..... I must admit I am a bit worried as anyone that angry must be 5'3 and 380lbs ....I am guessing he hasn't seen his johnson since the johnson administration.

What with all his racist hatred of President Obama it must be hard on his blood pressure ....or maybe he found out that son of his who works for Red Bull is dating a Black man.

Now that would be funny !!
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JCP needs to fire all it's US workers.

 

They need to set up an internet store selling direct from the Orient  and hire a bank of order takers from the Orient who can barely speak english to take orders from the older ones of us who can not order on line.

 

Then convince the Chinese government to force our government to allow a very low cost Chinese postal carrier to take over the US Post Office and kick the USPO pension plan to what ever that government agency that handles bankrupt companies.

 

Then JCP can ship anywhere in the USA from China for like 5 cents a cost lower than anything Fed Ex or UPS can ship for.

 

And as there will be no high paid Americans working for JCP anywhere in the world they will have like 1000 percent profit margins.

 

A true win win win situation thousands of JCP workers will get to relax at home on government paid unemployment checks and when those run out government welfare and food stamps and never have to work another day in their lives.

 

The US consumer will get a $1 dollar dress made in China for only $50 instead of the higher $75 offered by Amazon.

 

The US Post Office will be saved and run by Chinese who are not needy and will not make more than $2,000 a year and will not even know they should be getting a pension. Billions saved making the US deficit decrease to zero in a mere five years.

 

The retired and newly fired US Postal workers will be taken care of by the government agency that handles bankrupt company's pension plans and get about $55,000 a year in pension. Enough to live like super rich people.

 

The removal of thosuands of JCP employees and tens of thousands of USPO workers from the labor force will push the unemployment rate down below 6 percent.

 

This will allow the Federal Reserve to quit QE3 and start to jack up interest rates to 20 percent which will help retired people as their CD's will start to earn 10 percent interest.

 

The economy will start to grow at an 8 percent rate as inflation will hit upwards of 25 percent.

 

Yep this move will be a win win win situation for every one.

Apr 10, 2013 10:22AM
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As opposed to the last couple of days we are keeping the lead a bit longer....S&P in record territory....Unfortunately its only 1015 hrs and we have plenty of crooks hanging around waiting for their opportunity...So far so good but as always, be cautious...More later.
Apr 10, 2013 5:59PM
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A very good day for the markets, manipulators seeing red, better believe that....Still a couple of days left this week, if you think they are just going to sit there with their thumbs up their butts (we wish), think again...Next 2 days will be challenging...Enjoy.
Apr 10, 2013 12:04PM
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ABS, just how is it that you, having admitted to
solely  buying CDs and insured Munis, considers
yourself capable of commenting on anything
financial at all?

Not that I have anything against that, but its like
asking a kindergarten kid to pronounce judgments
about high school pre-calculus or world history.

You really should have your own column.  And that's
the best thing I can say today, so its off to the fast
food joint to set up my snot and spit for ABS next
'turkey' burger...Har har ha...Come and get 'em , ABS.

All other human beings have a great day!

Apr 10, 2013 5:41PM
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Ah the fetid stench of abs is in the air ....one can smell his obnoxious racism .....his use of the term "darkies" and "NGGR" for our African American brothers ...(who die as freely in the military as our white and brown Americans) .........

The stench is there but sadly no abs ...one can only surmise his girth has surpassed the point at which he can reach the keyboard or he is still languishing in gaol for solicitation AGAIN !!

If you work for Red Bull or "sell" something in NY your "dad" (ask your mom) ---- may be this toxic, racist pig that trolls the msn pages .......personally I doubt he has ever procreated with anything that was not made of plastic but who knows .....


Apr 10, 2013 11:44AM
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"NEW YORK (Reuters) - Stocks rose on Wednesday, as the S&P 500 climbed more than 1 percent to extend its fresh all-time record as investors scooped up technology and financial shares that have recently lagged other sectors' gains.
The Dow Jones industrial average gained 128.45 points, or 0.88 percent, to 14,801.91. The Standard & Poor's 500 Index rose 16.48 points, or 1.05 percent, to 1,585.09. The Nasdaq Composite Index climbed 50.56 points, or 1.56 percent, to 3,288.42."
$$$$$$$$$$$$$$$

 

This is terrorism.
Ben Bernanke is committing terrorism.
Wall Street is committing terrorism.
Technology that inhibits jobs is terrorism.
Technology has compromised our country and that is terrorism.
A failure to act against security threats is also terrorism.

Who in their sane mind is cheering daily records for the markets while poverty reigns in America?

Apr 10, 2013 10:14AM
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Apparently North Korea is a propaganda target soliciting for war-- the atypical Republican response to a massive Depression. We're tired out here but obviously WALL STREET is full of vigor. Since they are this good at ruining America through financial tyranny, I say we ship them all to the next hot-spot so they can ruin THEM and give us a chance to recover. Every banker, financier, trader, planner, paper and button pusher we can yank from their rat-hole office and deploy. "Take that, you scum... let me aim my retained law firm's legalese at you... all that sleaze will bring you to your knees." "Freeze... or I will collate myself and ruin your day..."
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