In of 2007, shares of J C Penney Company Inc (NYSE:JCP) were trading in the $82 range. Eight years later, the stock is trading at less than 10% of that amount.
And although the company has recently shown potential, investors shouldn’t count on a true turnaround.
The Many Changes of JCPenney
JCPenney struggled for years leading up to 2011. Competition from online retailers, high cotton prices and a lack of change to the business strategy for years had begun to show.
In an attempt to jump-start sales, the JCP board hired Ron Johnson — former Apple Inc. (NASDAQ:AAPL) marketing wizard and Target Corporation (NYSE:TGT) executive — as CEO. Johnson’s plan was to discontinue coupons and discounts, but simply offer low prices all the time.
In theory, it was a great idea — many retailers had operated very successfully with this strategy. See: Wal-Mart Stores, Inc. (NYSE:WMT) and Target.
In addition to that, Johnson wanted to follow another competitor’s strategy of having “stores within a store” offering different brands, similar to a Macy’s, Inc. (NYSE:M) layout.
But the new changes didn’t exactly go over well with consumers. Years of discounts and coupons had long fed an illusion of all patrons getting excellent “deals.” This disassociation with its customers only compounded JCPenney’s other problems, and sales continued to nose-dive. The result was a more-than-50% dive in JCP stock during Johnson’s tenure, which lasted just a year-and-a-half.
The Definition of Insanity?
When JCPenney realized Johnson wasn’t the right man for the job, they tapped former CEO Mike Ullman — the man who led JCP for seven years before being replaced by Johnson.
Ullman’s solution: Change JCPenney back to the retailer it was when he left by offering discounts once more.
Recent results would indicate that Ullman’s changes are working. JCPenney recently announced same-store sales growth of 3.7% for the months of November and December. Investors, clearly happy with these results, sent JCP stock flying more than 20% on the news.
But we’ve seen this play out before. In late February of last year, the stock roared higher by more than 25% after same-store sales rose 2% in the fourth quarter of 2013. JCP stock eventually climbed to $11.24 by the end of August … but as old problems welled up and concerns about growth came to the surface once more, the stock suffered as well, dropping back near $6 by December.
The problem: Ullman’s not doing anything new. In fact, he’s increasingly drawing from the past, most recently by reviving its paper catalog — something Ullman discontinued in 2010 to focus more on Internet sales. Of course, JCPenney is telling us that the catalog actually helps drive traffic and online sales.
Still, investors need to remember: There was a reason items like the catalog went the way of the dodo, and why a new CEO was brought in.
Yes, the company wasn’t dying, but it wasn’t thriving, either.
Looking forward
JCP is a smaller, weaker and more heavily indebted business than it was in 2007, when shares were above $80. That’s not to say the company can’t continue to grow same-store sales, improve its financial picture and continue to survive for years to come … but it’s unlikely that even if all those things will happen, investors will be handsomely rewarded.
When looking at the universe of stocks an investor can pick from, there are certainly much easier ways to make money than getting on the JCPenney bandwagon.
As of this writing, Matt Thalman was long AAPL.
