JCP

J.C. Penney: Equity Offering Shows Desperation; Shares Score a 1 on the VBI; Lights Out by Mid-2014?

by

With sales declining precipitously and bankruptcy looking like a real possibility, we have materially lowered our equity fair value estimate on retailer J.C. Penney (click ticker for report: ) to $3 per share. The firm now scores a 1 on the Valuentum Buying Index, and we’re avoiding shares at all costs in the portfolio of our Best Ideas Newsletter. Why Now? We haven’t liked J.C. Penney since former CEO Ron Johnson’s plan showed signs it clearly wasn’t working, and we have consistently maintained that Penney’s business model was obsolete and doomed to fail over the long term, even before Johnson made changes. Still, earlier this year, the firm improved its liquidity position when it raised over $2 billion in cash via debt with an interest … Read more

The Race to the Bottom

by

This week, infamous American department stores JC Penney (click ticker for report: ) and Sears (click ticker report: ) reported terrible second-quarter results. Let’s take a closer look at these failing former industry giants. JC Penney JC Penney continues to suffer from Ron Johnson’s strategy change and subsequent removal. Total sales declined 11.9% year-over-year to $2.7 billion, while the firm lost $2.16 per share on an adjusted basis. Both metrics fell short of consensus estimates. The firm burned through $1.1 billion in free cash during the quarter and has posted negative free cash flow of $2.1 billion year-to-date. The situation at JC Penney continues to be incredibly uncertain, particularly after activist shareholder Bill Ackman resigned from the board of directors … Read more

Which Department Store Looks Attractive?

by

Our fundamental view on the department store industry hasn’t changed much after the second quarter. Kohl’s sales gains were surprising, but if we look at the two-year trend of stacked comps (last year’s quarter plus this year’s quarter), Nordstrom continues to easily outperform its peers. Source: Valuentum Ultimately, we believe improving margins in the department store industry will be difficult. Even if a firm is able to gain some additional gross margin, investments in technology will likely increase capital spending. Overall, we view the cohort as fairly valued. Fundamentally, we think Macy’s will continue to outperform Kohl’s due to its superior online shopping experience, but Nordstrom appears to have the most growth opportunities as it looks to expand on the … Read more

Ackman Leaves the JC Penney Board

by

Tuesday morning, activist shareholder and hedge fund manager Bill Ackman resigned from the JC Penney (click ticker for report: ) board of directors. In a press release issued by the company, Ackman noted that during his entire board tenure, he’s always done what is best for the company, and he believes the best move at the moment is for him to step away from the board. Image Source: Valuentum, Company Filings Based on the stock’s initial reaction, we’re not sure if the market knows how to digest Ackman’s departure. On one hand, CEO Mike Ullman and Chairman Thomas Engibous no longer have to battle with Ackman over saving their jobs, but rather they can focus on engineering what continues to … Read more

RadioShack: Cigar Butt, Valuentum Won’t Puff

by

Famed investor Benjamin Graham, author of Security Analysis and the Intelligent Investor, made a fortune out of what he liked to call “cigar butts.” These stocks were often poor operating businesses selling for less than liquidation value. Graham would purchase said stocks with the hope that there was one last “puff” of profit left. Not all of them worked out positively, but Graham would bet on dozens of stocks trading at less than book value and hope for the best. RadioShack (click ticker for report: ) looks like a cigar butt. The firm’s core operating business is rapidly deteriorating, the firm is generating negative free cash flow, and recent rumors suggest the company is hiring advisors to help shore up … Read more

We Don’t Envy Ullman’s Position

by

After firing controversial CEO Ron Johnson during the quarter, department store retailer JC Penney (click ticker for report: ) announced weak results yet again. Revenue fell 16% year-over-year to $2.6 billion, falling short of already low consensus expectations. The firm’s loss was also much deeper than consensus estimates, widening to a loss of $1.31 per share on a non-GAAP basis. Free cash flow was substantially worse as the company burned through even more cash than it did in the prior-year period, posting negative free cash flow of $966 million. The main culprit of JC Penney’s weakness seems to have been its change in price strategy. Same-store sales declined 16.6%, which is simply unacceptable for any retailer. The firm brought back … Read more

Yahoo: The Turnaround

by

Internet search and content provider Yahoo (click ticker for report: ) reported first-quarter results that were mediocre. Revenue ex-TAC (excluding traffic acquisition costs) was flat year-over-year, falling short of consensus estimates. Earnings per share easily exceeded consensus expectations, rising 52% year-over-year to $0.35. Yahoo provided non-GAAP earnings per share of $0.38 that excluded stock-based compensation expense. Unfortunately for shareholders, the EPS increase was mostly the result of a 10% reduction in share count, a reversal of one-time charges, and a significantly lower tax rate. Non-GAAP operating income fell $7 million year-over-year to $224 million. Operating cash flow also declined to the magnitude of 26%, while free cash flow also declined 20%. In our view, the quarter was not nearly as strong … Read more

Good Bye Ron Johnson: JC Penney In Flux

by

After the market closed Monday afternoon, JC Penney (click ticker for report: ) announced much maligned CEO Ron Johnson is out, and the reins will be turned over to former CEO Mike Ullman. While we saw little chance of Johnson’s turnaround consummating in a retailing powerhouse at this point, we are shocked by the timing. If there was any chance that the JC Penney turnaround was going to work, Johnson had to be given some additional time to complete the changes. The abrupt decision indicates that the board clearly believes the Johnson’s strategy would continue to fail, and the return of Ullman suggests that JC Penney may return to its previous market position. Not everything Johnson did was necessarily bad—the … Read more

Who’s Amazon’s Next Victim?

by

An interesting white paper was released recently, analyzing how Amazon (click ticker for report: ) is altering the retail landscape. The paper itself had some interesting insights, but our favorite takeaway of Placed’s work was the top ten companies at risk. 1.    Bed Bath and Beyond (click ticker for report: ) 2.    PetSmart (click ticker for report: ) 3.    Toys ‘R Us 4.    Best Buy (click ticker for report: ) 5.    Sears (click ticker for report: ) 6.    Barnes & Noble (BKS) 7.    Kohl’s (click ticker for report: ) 8.    Target (click ticker for report: ) 9.    Costco (click ticker for report: ) 10. JC Penney (click ticker for report: ) For the most part, we agree with the list, … Read more

The Good, The Bad, and The Ugly: Macy’s, Kohl’s and JC Penney

by

The fourth quarter is easily the most important quarter for retailers, and we saw winners and losers surface. The fortunes couldn’t have been more different, so let’s take a look at the results of the department stores. The Good: Macy’s Macy’s (click ticker for report: ) fourth quarter was among the best of the department stores, if we exclude performance from higher-end Nordstrom (click ticker for report: ). Macy’s took advantage of JC Penney’s (click ticker for report: ) movement away from discounting to run several promotional sales, which drove revenue growth of 7% year-over-year to $9.4 billion during the quarter (with one extra week of sales). Earnings, net of one-time expenses, increased 21% year-over-year to $2.05 per share, easily … Read more