by Alyssa Oursler | November 9, 2012 1:31 pm
The numbers coming out of department-store retailer JCPenney (NYSE:JCP), still having a midlife crisis, are getting worse and worse.
JCP’s latest quarterly earnings news sent shares down 6% midday Friday and brought the company’s year-to-date losses to over 40%.
What’s even worse is that there seems to be little hope of improvement anytime soon. For investors, that leaves little reason to go anywhere near the stock.
In fact, here are seven simple reasons why you should stay away from the downtrodden department store:
Numbers. Today’s numbers cut straight to the point. In the third quarter, Penney reported a net loss of $203 million and an adjusted EPS of 56 cents — far worse than the 19-cent-per-share loss analysts were expecting. Same-store sales fell a painful 26%, while overall revenue came in at $2.92 billion — far under the $3.23 billion forecast.
That makes for the fifth consecutive quarter of losses and sixth straight quarter of falling revenue.
Discounts. This drum has been beaten over and over, but it’s too big to overlook. Back in February, Ron Johnson took the helm and decided to toss out discounting and coupons — which customers, he admitted, were addicted to.
Shoppers weren’t pleased.
Since then, he’s been doing whatever he can — including price cuts, eliminating a tier of the new pricing scheme and offering coupons that apparently aren’t coupons — to get customers back. But the damage seems to have been done.
Time. Granted, in the long run Johnson doesn’t really care about losing his old coupon-loving customers because he’s trying to revamp the store altogether. As he put it:
“I’m really leading two companies. One is JCPenney, a promotion department store. The other is JCP, a specialty department store. What’s going to be good for one is not going to be good for another…. The new JCP, centered around the shop concept, is gaining traction with customers every day and is surpassing our own expectations in terms of sales productivity which continues to give us confidence in our long term business model.”
The problem is that there’s a significant lag in terms of shifting the old, unsuccessful store into these new, supposedly super-popular department stores of the future. Johnson gave a 36-month time horizon toward completing the makeover.
Trade-Offs. Everyone understands that building a customer base takes time. But Penney — a company that’s publicly traded and been around for over a century — isn’t a new retailer. It faces expectations, scrutiny and impatience.
With that in mind, pushing away your core customer base doesn’t seem to be such a grand idea, and the numbers agree.
Gimmicky. Trying to draw in a younger crowd makes sense as a long-term objective. But as part of that younger crowd, I have to express my skepticism.
Wider aisles that are meant to be “streets,” along with a Town Square in the middle of the store where people can do Pilates? Free haircuts for kids and free holiday portraits for families this winter? Self-checkout kiosks that don’t take credit cards?
It sounds gimmicky. Penney is trying too hard. I don’t need some new, fancy specialty store.
Location. One of Johnson’s ideas that sounds plausible: Converting outdated department stores into one-stop shops. But even that comes with problems.
To start, plenty of one-stop shops already exist, from Wal-Mart (NYSE:WMT) for the bargain-hunters to Target (NYSE:TGT) for the frugal fashionistas. Customers know what to expect at these stores and are in the habit of hitting them up.
On top of that, Penney is often an anchor store at a mall — quite the opposite of the place people go to only visit one store. The store-within-a-store concept is intriguing — and was well-received — but that’s what a mall is anyway. Why do we need a mall within a mall?
Reputation. Worst of all, Penney’s woes are far from a secret these days — so much so that the backlash on Wall Street has infiltrated Main Street. Many shoppers know what’s going on with the company and the stock, which is uncommon and an especially bad sign.
For one, it makes those gimmicks — ones that consumers might think were cool in a bubble — smack of desperation. And it gives customers further reason to stay away.
The Bottom Line. In the end, Johnson’s strategies just might pay off … eventually. But nothing’s going to change anytime soon.
As an investor, the takeaway seems pretty obvious. You can snatch up countless other companies — whether Kohl’s (NYSE:KSS) or Macy’s (NYSE:M) or even Sears Holdings (NASDAQ:SHLD) — until JCPenney’s strategy starts to pay off.
If it ever does, that is.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned companies.
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