Sometimes it isn’t just business challenges that affect a stock’s price. Public perception of a company can do as much, if not more, damage than whatever is transpiring with the business.
This is particularly true in the face of weak corporate communications strategy, which is one reason why JCPenney (NYSE:JCP) stock is suffering as much as it is. That’s not to say the company’s turnaround challenges aren’t baked into the stock price. They are, without question. However, the company’s communications have been abysmal — and consequently, market perception has suffered.
In short, JCPenney needs to communicate what their major change means and what it looks like. Here are some of their biggest challenges (and how they could be tackled):
Necessity of turnaround has not been sufficiently explained
- A detailed explanation of why a turnaround was essential should be reiterated to the financial media and shareholders: Where would JCP be in 2018 without the change, and what are management’s expectations by 2018?
The short-term turnaround strategies are not clearly articulated
- JCP gives off an impression of constant change, which suggests management itself does not believe in its own plan.
- Pricing remains confusing.
- Shareholder, employee and supplier morale may consequently be at risk.
- Provides openings for media to construct bearish narrative.
- For shareholders and the media, articulate the “store within a store” concept, its genesis, its success thus far, and why consumers will return for this experience.
- Articulate advantages of the “store within a store” concept for the consumer.
- As soon as possible, settle on pricing strategy and blitz the consumer with messaging.
- Contextualize short-term changes within long-term turnaround
The Long Range Plan is not being adequately communicated
- The financial press remains focused on near-term results. They have no understanding of the broader vision.
- Consequently, shareholders follow the media’s narrative.
- Management must use language that reinforces the complexity of, and patience required for, a turnaround. Using the word “reboot” might even be more appropriate, as it conjures images of popular culture successes (James Bond, Star Trek, Spider-Man).
- Sales declines should be explained as intrinsic to this process, and compared to other turnarounds, if possible.
- Consumers need to be further educated as to the advantages of the New JCP, and the problems it will solve for them.
- Position strategy shifts as positive developments — management, suppliers, employees, and customers are shifting to adapt to the new JCP.
Shareholders and the media view JCP as a consolidated entity of old and new
- Consolidated view masks turnaround progress
- Hammer home the “Old JCP” vs “New JCP” meme.
- Contrast financial results of the two.
The human side of JCP is not being presented
- Shareholders and employees will have more faith in management if human faces are seen, and their voices literally heard.
- Shareholders and employees should feel they know their CEO. The human connection will enhance morale.
- Present profiles of senior management.
- Consider enhanced store presence from senior management, and frequent email missives to employees.
Thus, there are two components to the JCPenney story: the communications angle and the actual turnaround. To a certain extent, the two are linked — communication follows internal action. And right now, internal action appears confused.
If you believe communications will improve, then I think you should go long the stock, or buy calls to mitigate potential risk. A robust narrative will offer faith that the company is on top of its seismic shift.
Doing things like having closed-door investment presentations is a terrible idea. If this keeps up, then management isn’t ever going to understand the importance of communications strategy. If they can’t grasp that concept, the turnaround is much more likely to fail, and you go short, or buy puts.
In the meantime, there are other ways to play the stock. There are short-term gains to be made by selling naked puts. This short-term strategy negates much of any communications shortfall and limits exposure to bad news coming from the company. Selling the April 15 puts for 92 cents, for example, yields a sizable 6% return in just five weeks, or about 62% annualized.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.