JCP - JC Penney

[Kraven]

http://www.bloomberg.com/news/2013-03-20/j-c-penney-plane-commute-executives-seen-hurting-revamp.html

 

J.C. Penney High-Flying Executives Seen Hampering Revamp

 

This kind of thing always strikes me as a made up reason why a stock isn't doing well.  It hasn't mattered that everyone be hunkered down in a room for years.  And if it's needed, in a few hours everyone can go to the mattresses if necessary.

[TwoCitiesCapital]

Bondholder's dropped suit.

 

http://finance.yahoo.com/news/bondholders-rescind-claim-against-penney-233746761.html;_ylt=Ar.ieeYD7dI0gMRDnrWffGmiuYdG;_ylu=X3oDMTIxN3FhcXRtBG1pdANXaWRlIFF1b3RlcyBNb2R1bGUEcG9zAzM3BHNlYwNNZWRpYVJlY2VudFF1b3Rlc1BvcnRmb2xpb3NXaWRl;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

 

[infinitee00]

The New Yorker chimes in www.newyorker.com/talk/financial/2013/03/25/130325ta_talk_surowiecki

 

Of course, this cuts both ways. Right now, Johnson looks like a complete fool. But turnarounds are hard to pull off, especially in retail. One study found that efforts at merely getting a money-losing retailer back to profitability succeed only thirty per cent of the time. Radically remaking a major company, as Johnson is trying to do, is even harder. So, if Johnson isn’t as good as he looked at Apple, he’s probably not as bad as he looks at Penney. Indeed, his biggest mistake may simply have been taking the job in the first place. He’s become a living example of one of Warren Buffett’s keenest observations: “When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”

 

[luck]

from the new yorker article:  “Penney had been run into a ditch when he took it over. But, rather than getting it back on the road, he’s essentially set it on fire.”

 

wow.  what a quote from the columbia prof.  much thanks to the "snowball" audio to have munger's take on retail turnarounds drilled into my head prior to assessing this stock. 

 

that said, went to the mall yesterday and it was packed.  jc penney traffic per square foot was solid and slightly lower than macy's.  nobody at sears holdings despite a packed mall.  i haven't seen anybody at the joe fresh installation the last three times i've visited.  however, the gals at the register say sales have been quite strong from what they've seen.  due to fewer registers perhaps, lines and jcp were longer than those at macy's or sears.  at jcp though, they're clearly killing margins to drive sales from what i can see.  one woman looked at another and said, "is that really five dollars? wtf?"

 

one argument that's been offered when it comes to mall survival is that they aren't building new malls while there's population growth and this lack of supply will offset the disruption of amazon, etc.?  wondering if anyone has any thoughts on the merit or lack of merit of such an argument?

 

all in all, i don't think the take private value of this is $45 per recent articles, but at the same time, i don't think ackman will sink this ship entirely before selling it either.  my guess is he'll try to save face after borders and won't risk another zero.  I continue to wait for extreme panic to set in to take this below $10 before considering it. 

 

 

 

 

 

 

[ItsAValueTrap]

one argument that's been offered when it comes to mall survival is that they aren't building new malls while there's population growth and this lack of supply will offset the disruption of amazon, etc.?  wondering if anyone has any thoughts on the merit or lack of merit of such an argument?

My guess is that online and bricks&mortar (B&M) shopping will ultimately find a balance.  (Online will obviously take a greater share than it does today.)  There will be categories like food and groceries that will be dominated by B&M.  Apparel will be mostly B&M because people like to try things on.  Or look at the Apple store- it has mediocre prices compared to online/other stores yet it one of the best retail operations of all time.

 

In my opinion, the mall industry will probably go through a boom/bust phase.  Right now low interest rates are going to drive up valuations because you can lever up these real estate assets with loads of debt.  If interest rates shoot up, there might be carnage.

 

2- If you are worried about online shopping, JCP will see the nasty end of that.  Retailers that sell their own brands will have (some) protection since they won't be a showroom for other companies.

 

But I don't think online versus B&M shopping is that huge a factor for JCP.  It does not explain their sudden and dramatic drop in same-store sales.

[texual]

My entire opinion on jcp has changed. I spent a weekend at one of the more upscale locations where almost half the store is in transition and while I don't have time now to write up my thoughts, I will post an update on jcp.

 

The bottom line is this: they are on the right track and will be very successful with the new format provided they don't fire or lose anyone from Johnson's team. It also would help if they had a little more cash to burn but if they kept these transformations going another year they will be in the clear. I'm really digging the new format at the more completed stores and it see,s customers do too

 

 

[BG2008]

texual, I'd love to hear why your opinion changed so drastically.  Looking back over your previous posts, you described Sears and JCP as both poison.  I suspect that my optimism from JCP stems from visiting Roosevelt Field Mall on Long Island.  It's very well done and I can certain see the "vision"   

 

Anyone going to Fairfax this year?  Love to meet up and talk JCP and what not and put a face to a name.

 

[CorpRaider]

I'm unable to quote the posters earlier in the thread discussing the balance between online and b&m, but I thought eddie lampert had some interesting thoughts on how sears intends to blend the two via its rewards program and how he sees the evolution in the space.  Although, I kind of found lampert's discussion troubling, as I always thought he was a shrewd and calculating allocator of capital that would liquidate k-mart and sears slowly over time or at least rationalize it and end up with a holding company with the kenmore, craftsman, lands end and other brands and gobs of FCF; but he sounded like he's a real retailer now or at least is fighting that battle at SHLD.

[rogermunibond]

Mailing today for the wife from JCP -- $10 off purchase of $25 or more.  Getting more promotional!

[ItsAValueTrap]

Getting more promotional!

Apparently some people are just really addicted to deals.  Possibly in the same way that many people have problems with procrastination, drinking/smoking/drugs, "love", etc. etc.  JCP should have never thrown away its coupon crack.

 

http://www.divinecaroline.com/life-etc/career-money/i-confess-%E2%80%93-i%E2%80%99m-addicted-deals

 

"If I was willing to rethink how I shopped, I could get things for free or nearly free. The possibilities were exciting.

 

Soon, I was addicted. I had 15 boxes of free Honey Bunches of Oats in my pantry. My linen closet was bursting with cheap razors, shampoo, and toilet paper. My bargain hunting was getting out of control."

http://www.couponcravings.com/2008/09/guest-post-how-to-curb-your-addiction/

 

http://www.cnbc.com/id/47440277

[stahleyp]

My mom (an avid JCP shopper) got really mad when they stopped coupons. I decided to not buy the stock because of that (despite the hype) haha.  :P

[BG2008]

J.C. Penney revives ''mark-up to mark-down'' tactic to boost sales

 

As I understand it, they're marking up the private (company) brands in order to price it down along with coupons.  As far as I'm concerned, the shops are not being marked up in order to be discounted.  Lately, I've been seeing a ton of traffic at JCP with the $10 off on $25 coupons.  The discounts are steep, but at least the foot traffic are coming back.  Yesterday was the busiest I've seen of a JCP location, every register had lines.  It is likely a combined result of coupons and Easter weekend. 

 

http://uk.reuters.com/article/2013/03/27/uk-jcpenney-idUKBRE92Q03Q20130327

[luck]

bg and others, what are your thoughts on omar saad's reit conversion valuation?

 

http://finance.yahoo.com/news/j-c-penney-climbs-reit-144941919.html

 

if new jcp starts failing, what do you believe ackman will do?  ride it to the end? 

 

not to say that i think new jcp will necessarily fail - i see some of the positives recently mentioned.  i'm trying to think through how or if they can hit the eject if things start failing fast.

[BG2008]

I think that a $1.2bn/year in rental income is a bit "pie in the sky" in a downside scenario.  If you assume that the average sqft for the 300 locations are 100,000 sqft.  This implies a rent/sqft of $40/yr.  If I'm a merchant looking to get some mall space, why would I get my 4,000 sqft inside a JCP rather than get space from the inline space from Simon or GGP?  Yes, some of the higher end malls probably charge over $100/sqft/yr for good inline spaces.  The inline space at a mall is clearly a much better value add with its own space, four walls and generally allow the merchant to clearly differentiate itself from others.  These 300 locations clearly are not ready at this moment to be rent out to merchants.  I think that if JCP wants to charge $40/sqft, they need at least $50/sqft of cap ex to get that space ready which would equate to $1.5bn.   

 

I think that when and if JCP does turn around its retail operation, the real estate can be monetized for $13 bn ($1bn in NOI at 7% cap rate).  This NOI can be arbitrarily created as long as Ackman is in charge, assuming that there's at least EBIDTAR/Rent coverage of at least 2x which implies a EBITDAR minimum of $2.6 billion a year. 

 

I think Ackman has several courses of action if JCP starts failing and there are several contingencies.  If the business starts failing because the shops clearly doesn't work.  Then I guess, he'll bring back the coupons and heavy discounting and try to harvest cashflow.  If the shops don't work, forget about the the $1.2bn in rental income.  It's not going to happen. 

 

My take on the situation is that "cure the cashburn, get back to cashflow neutral, and then just convert badco into goodco, i.e. shop conversion."  If they can't cure the cashburn, I'm not really comfortable holding the stock unless it's an equity sliver in a bankruptcy situation ala GGP style.       

 

[BG2008]

For clarification purposes, despite the fact that I don't buy into the "downside protection" thesis of JCP's real estate, I'm long JCP via Calls and Leaps.  I won't feel comfortable with the downside until they start to stabilize the cashburn and selling a few hundred owned boxes in a 08/09 crisis is akin to "count on the kindness of strangers" per Uncle Warren. 

[Sportgamma]

In a clear sign of its dissatisfaction with the direction of the company, the board of J. C. Penney gave its chief executive, Ron Johnson, a pay cut of almost 97 percent, to $1.9 million, for 2012, according to a regulatory filing on Tuesday.

 

http://www.nytimes.com/2013/04/03/business/jc-penney-slashes-pay-for-chief.html?ref=todayspaper&nl=business&emc=edit_dlbkam_20130403

[Guest valueInv]

In a clear sign of its dissatisfaction with the direction of the company, the board of J. C. Penney gave its chief executive, Ron Johnson, a pay cut of almost 97 percent, to $1.9 million, for 2012, according to a regulatory filing on Tuesday.

 

http://www.nytimes.com/2013/04/03/business/jc-penney-slashes-pay-for-chief.html?ref=todayspaper&nl=business&emc=edit_dlbkam_20130403

 

Wish more companies did that.

[Guest wellmont]

johnson made his money at apple, and when he initially signed on at JCP. He's just waiting to get fired. So he can collect his Gparachute and find a retailer, with products and stores that consumers prefer, that will hire him again based on his apple reputation.

[Guest valueInv]

johnson made his money at apple, and when he initially signed on at JCP. He's just waiting to get fired. So he can collect his Gparachute and find a retailer, with products and stores that consumers prefer, that will hire him again based on his apple reputation.

 

Welcome back Wellmont. Had you coffee yet? :D ;D ;D

[BG2008]

Supposedly JCP unveiled its first home goods store today.  Has anyone been to the stores today? 

[muscleman]

Hi Folks. I am a shareholder in SHLD and I am late to the JCP party.

Can anyone tell me why JCP is as good an oppurtunity as SHLD?

The current price/sales ratio is twice that of SHLD, so in order to generate the same earnings, JCP needs to have twice the profit margin as SHLD, which seems unlikely. That would imply JCP's upside, if purchased from today's stock market at $15.5, would only be half the upside of SHLD.

 

Am I missing something here? :o

[Matson125]

My entire opinion on jcp has changed. I spent a weekend at one of the more upscale locations where almost half the store is in transition and while I don't have time now to write up my thoughts, I will post an update on jcp.

 

The bottom line is this: they are on the right track and will be very successful with the new format provided they don't fire or lose anyone from Johnson's team. It also would help if they had a little more cash to burn but if they kept these transformations going another year they will be in the clear. I'm really digging the new format at the more completed stores and it see,s customers do too

 

Texual,

 

I am interested to hear your thoughts

 

 

[luck]

 

here's a video from today (i believe) where ackman seems to be acknowledging the risks of jc penney:

 

http://insider.thomsonreuters.com/link.html?cn=share&cid=1057924&shareToken=MzpjODJmMTgzNC1jMjA1LTRjMWYtYWRmZC1iMzVlZWI1M2E1NGU%3D

 

[texual]

I'm still putting it all together. I visit a particular JCP or two every weekend and spend a bit of time just running through some mental checklists and brainstorm. I've got a lot on my mind with JCP and SHLD in general. I'm trying to reconcile the various moving parts and letting my imagination run wild. I will come back with something when the dust settles. Right now I would just sound like a rambling fool, there is so much going on inside JCP to wrap my head around.

 

Either way its a great investment opportunity for JCP if and when they can turn around the numbers. I think they will achieve it, but I am worried about being stuck in a situation where lightning strikes (black swan stuff) and they wind up firing Ron Johnson out of nowhere, or who knows. They kind of need Ackman's support and I heard he isn't so thrilled anymore. I bet he isn't the kind of billionaire I want on my team because quite frankly he lacks imagination and isn't a real long term investor.

 

For those last reasons I would still not touch JCP with a ten foot pole until I know he is going to stick around. I have a substantial chunk in SHLD and sleep very well at night no matter the swings.

 

Stocks on the end are nothing more than prices and I really believe financial metrics can be improved or flexed to optimal while leadership, honesty, integrity and long term (thick skinned) owner/operators are rare.

 

You can tell which team I play for and where I am betting money, but I still really love the JCP re-invention. I wish SHLD had done something like this.

[jay21]

Ron Jon is out

 

http://www.reuters.com/article/2013/04/08/jcpenney-johnson-idUSL2N0CV1UC20130408?feedType=RSS&feedName=marketsNews&rpc=43