JCP - JC Penney

[Luke 532]

 

If you want to learn about options in this situation, and if you think there is a good enough chance that the common is not a zero, then I would suggest selling puts.  The 2016 $5 puts are selling for 100%+ implied volatility.  People are panicking.

 

I have no position.

 

The JAN 2015 $8-strike puts are selling for $3.50.  Selling those could be interesting for those that believe JCP has enough liquidity to survive for the next 14-15 months.

[gfp]

If you are interested in betting on mere survival, the bonds might be a better idea - especially if you are wrong.  As they approach the 50's they start look a bit safer.  A lot of the trade in the stock is probably people shorting it as part of looking to start buying some debt.  To see the prices, go to this link and select 'Corporate' and enter JCP as symbol -

 

http://finra-markets.morningstar.com/BondCenter/Default.jsp

 

Also, remember that Goldman is above you with most of the collateral ->

http://www.zerohedge.com/news/2013-09-24/goldman-goes-medieval-jcpenney-shorts-bonds-slams-liquidity-expects-default-risk-sur

[enoch01]

 

If you want to learn about options in this situation, and if you think there is a good enough chance that the common is not a zero, then I would suggest selling puts.  The 2016 $5 puts are selling for 100%+ implied volatility.  People are panicking.

 

I have no position.

 

The JAN 2015 $8-strike puts are selling for $3.50.  Selling those could be interesting for those that believe JCP has enough liquidity to survive for the next 14-15 months.

 

I have no position mostly because I don't know what to make of the company.  They are part-way through a transformation where they were going after a different customer base.  This is retail, not IBM's annuity business.  Margins are low and competition is brutal.  So you can't stop on a dime and go after a different customer.  Their imploding sales testify to that.

 

So now what?  Go back to their previous customer base?  What are they going to do with their stores that are partially completed?  Do their CapEx plans include undoing previous work?  What is normalized revenue and earnings with the current Frankenstein scenario?

 

At least Lampert controls his company and is a penny-pincher.

 

All that said, selling puts or just buying common could work out great.  I pass for now.  There's probably easier ways to make money.

[valueinvestor82]

While I think that it is simply diligent and prudent to look at the hierarchy of the capital structure, I think ones thesis on the stock must take into consideration the "why" and "how" the company ended up in its current position. I won't rehash every aspect given the great coverage provided by others, but I will focus on what I think is key: while JCP was subpar in many respects prior to johnson, it was Johnson's radical changes that brought the company to its knees. My long thesis is based on a belief that the company WILL attract many of its customers back to its stores, and even a subpar recovery will result in outsized returns. We are seeing trends in our favor already, and last year the company didn't even participate in the sales events that should drive volume and traffic this year. I can't see a former customer saying "they used to have terrific sales, but due to one year when they didn't, I'm ignoring all future sales events..I'm that mad!!" That would seem illogical, or at least irrational. I don't want to gloss over the fact that there is still decent (or indecent?) risk, but let's not throw JCP in the category of "businesses going extinct" simply because it has been in terminal decline- that is simply not the case!

[ItsAValueTrap]

let's not throw JCP in the category of "businesses going extinct" simply because it has been in terminal decline- that is simply not the case!

Businesses in terminal decline usually do go extinct.  Statistically, bad companies usually stay bad and good companies usually stay good.

 

I think the important thing here though is to look at the CEO and his skill.  In retail, almost everything comes down to the CEO.  So is Ullman a good CEO?

[valueinvestor82]

I should have clarified, I was agreeing with you in that business in terminal decline DO go bankrupt, I was stating that JCP is not in terminal decline, unless the "Johnson disruption" had continued. Ullman arguably had experience in a variety of retailers showing an ability to achieve at least marginal success, and likely a return to JCPs core customer base. I wouldn't go as far as to judge the leader, and Buffett said to buy businesses that could be run by idiots, because eventually one will. While I don't think JCP has a moat, I do believe that if Ullman is an "idiot," that won't stop him from restoring what was, and that's what's important.

 

My question is this- what has changed since the stock was at $14?

1) more money in the bank, and the dilution (and poor communication) that accompanied the raise

2) positively trending comps

3) unprecedented attacks and an increase in short interest

 

None of those scream "game changer" to me, except that liquidity is off the table for about a year, using reasonable assumptions.

 

See you back in the teens :)

[ItsAValueTrap]

I wouldn't go as far as to judge the leader, and Buffett said to buy businesses that could be run by idiots, because eventually one will. While I don't think JCP has a moat, I do believe that if Ullman is an "idiot," that won't stop him from restoring what was, and that's what's important.

 

Uh... when Buffett said that, he really wasn't talking about retail.  Remember that Buffett used to own retail stores like Hochschild and Kohn.  He learned the *hard way* that retail is a terrible business.  Re-read his shareholder letters.  Also recall that Rose Blumpkin had a falling out with her family, opened a competing store across the street, and beat Nebraska Furniture Mart.  (Eventually the family reconciled.)

 

Ullman may be alright as a CEO.  So far same store sales are down though in his defence he just arrived on the job.  It will be hard to go back to the way things were because Johnson fired a lot of people.

[compoundinglife]

For better or for worse I sold some $5 puts yesterday. The net cost if I get the stock put to me is $2.78 a share. If it comes down to that my guess is that its on its way to zero. However I think things are very emotional at the moment and I think there is good chance they don't file. In the meantime I will invest the proceeds sit back and watch. 

[negative alpha]

The two year notes are looking really attractive @ 18.4 YTM.

[booth52]

If you are interested in betting on mere survival, the bonds might be a better idea - especially if you are wrong.  As they approach the 50's they start look a bit safer.  A lot of the trade in the stock is probably people shorting it as part of looking to start buying some debt.  To see the prices, go to this link and select 'Corporate' and enter JCP as symbol -

 

http://finra-markets.morningstar.com/BondCenter/Default.jsp

 

Also, remember that Goldman is above you with most of the collateral ->

http://www.zerohedge.com/news/2013-09-24/goldman-goes-medieval-jcpenney-shorts-bonds-slams-liquidity-expects-default-risk-sur

 

Thanks for posting this zerohedge article link.  I further followed that article to this link:

http://www.zerohedge.com/news/2013-04-29/confused-what-going-jcp-heres-pro-forma-cap-table-and-cliff-notes

 

...virtually all of the company's entire merchandize inventory, and some of its PP&E is now spoken for and encumbered. It also means that any new debt will not be secured, which for a company that already has 10 unsecured bonds may be tricky.

 

I did a quicksearch for jcpenney bond covenants online.  Does anyone know of a website where these are readily found?  I am curious as to what assets back these bonds (sorry I'm sure my terminology is incorrect here too), some of which Berkowitz holds in his FOCIX fund.

 

Thanks.

 

[OracleofCarolina]

http://www.buzzfeed.com/sapna/why-delias-is-the-next-jcrew-and-not-the-next-jc-penney?s=mobile

 

Whitney Tilson sharing some thoughts on what went wrong at JCP

 

""My analysis of Ron Johnson is he came in with the absolute wrong strategy, did not understand, and, in fact, had scorn for his own customers, and that on top of that, he was a terrible manager and operator, just basic day-to-day blocking and tackling," said Tilson, who's no longer in the stock. "That was a trifecta that basically sunk the company."

 

"If someone sat down and said, 'How can we destroy this business as rapidly as possible? What would this plan look like?' Ron Johnson executed on that plan with enthusiasm, and I am furious with myself for not having seen, what in hindsight, is completely obvious," Tilson continued. "I was to some extent blinded by his charisma and my confidence — I don't know smarter guys than Bill Ackman and Steve Roth in terms of finance, real estate, et cetera, but neither of those guys are retail guys, and I am developing a greater appreciation for someone who just really understands real retail. Apple stores aren't really retail."

[Guest hellsten]

Not very good notes, but at least it's something:

Marc Lasry's Presentation at Invest For Kids Chicago 2013

 

•    Reason all the risk in the system is that LIBOR is that 25 bps

•    Supposed to generate a 40x RFR for get 10% per annum. But isn’t there risk there?

•    Why is that risk?

 

•    Idea #1 is J.C. Penney Debt

o    Why JC Penney? Convince to go and shop

o    Everyone believes JCP will file for bankruptcy

o    Bonds mispriced based on that assumption

o    JCP operates in 49 states (no Hawaii)

o    Slowing retail environment and they get rid of old CEO and bring in Ron Johnson

o    Ron Johnson took a bunch of risk

o    Coupons and promotions here historical

o    Prior to new strategy $17 billion in sales $1.4 billion of EBITDA yet goes to -$500 million of EBITDA

o    Able to raise $2.2 billion of new debt to get to $3 billion of debt and $2.5 billion on unsecured – but that have $2 billion of cash

o    Interest payments are $250 million so hard to file of bankruptcy

o    JCP survives unless the value differential

o    Make ~25% return per year for 2 years in debt so you are making 80x RFR due to the believe that JCP will file bankruptcy

o    Same stores sales are flat to up

o    So you are creating the company

o    Majority is telling you “you are wrong”

o    “Nobody likes noise and don’t want to deal with it and that creates opportunity”

 

http://www.marketfolly.com/2013/10/marc-lasry-long-jc-penney-debt-invest.html

[Guest wellmont]

http://www.buzzfeed.com/sapna/why-delias-is-the-next-jcrew-and-not-the-next-jc-penney?s=mobile

 

Whitney Tilson sharing some thoughts on what went wrong at JCP

 

""My analysis of Ron Johnson is he came in with the absolute wrong strategy, did not understand, and, in fact, had scorn for his own customers, and that on top of that, he was a terrible manager and operator, just basic day-to-day blocking and tackling," said Tilson, who's no longer in the stock. "That was a trifecta that basically sunk the company."

 

"If someone sat down and said, 'How can we destroy this business as rapidly as possible? What would this plan look like?' Ron Johnson executed on that plan with enthusiasm, and I am furious with myself for not having seen, what in hindsight, is completely obvious," Tilson continued. "I was to some extent blinded by his charisma and my confidence — I don't know smarter guys than Bill Ackman and Steve Roth in terms of finance, real estate, et cetera, but neither of those guys are retail guys, and I am developing a greater appreciation for someone who just really understands real retail. Apple stores aren't really retail."

 

his and his buddy's entire thesis for buying the stock was how great RJ was going to be. :)

[fareastwarriors]

http://www.bloomberg.com/news/2013-11-08/j-c-penney-divides-distressed-funds-from-avenue-to-centerbridge.html

 

 

J.C. Penney Divides Distressed Funds From Avenue to Centerbridge

[Guest hellsten]

July, 2013:

"J.C. Penney (short): This was our most profitable short of 2012. Though the retailer was poorly positioned, the shares rocketed in early 2012 based on overhyped promises put forth by a highly promotional CEO. Following the presentation of its strategy, the new CEO dumped a bunch of his personal stock on the market. We doubted the new strategy would  succeed. We covered when the Board fired the CEO before he could turn the company into a penney stock," Einhorn wrote in the letter.

 

http://www.businessinsider.com/david-einhorn-closes-jcpenney-short-2013-7

[Luke 532]

http://www.valuewalk.com/2013/11/j-c-penney-shoppers-say-the-chain-is-back/

 

J.C. Penney Shoppers Say The Chain Is Back, Shares Could Rally

[fareastwarriors]

J.C. Penney Looks to Turn the Corner

 

 

http://blogs.wsj.com/moneybeat/2013/11/18/j-c-penney-looks-to-turn-the-corner/

[fareastwarriors]

Why JC Penney's $1.97 pants could spoil Christmas

 

http://www.cnbc.com/id/101211048

 

[Guest hellsten]

"Howard Davidowitz, chairman at Davidowitz & Associates, discusses why he believes J.C. Penney needs to file for bankruptcy protection to survive."

 

"Nobody needs J.C. Penney or Sears."

 

http://www.bloomberg.com/video/j-c-penney-is-probably-going-bankrupt-davidowitz-YVcNbtcmTca1JvQl9arRNg.html

[fareastwarriors]

http://www.cnbc.com/id/101226809

 

J.C. Penney CEO Mike Ullman brought 112,000 shares of JCP at $8.95 a share, according to an SEC filling.

[ItsAValueTrap]

Didn't Ron Johnson have more skin in the game?  ;)

[fareastwarriors]

The Dirty Secret of Black Friday 'Discounts'

 

How Retailers Concoct 'Bargains' for the Holidays and Beyond

 

http://online.wsj.com/news/articles/SB10001424052702304281004579217863262940166?mod=WSJ_hps_LEFTTopStories

 

 

Cynthia Spann is suing Penney over what she says are phantom discounts. She bought three blouses at 40% off the regular price of $30 in March 2011, according to her complaint. But instead of $30, the prevailing price for the blouses in the three months preceding her purchase was $17.99—exactly the same as the sale price she paid, the lawsuit alleges. Ms. Spann said in the complaint that she wouldn't have bought the blouses if she had known the discount wasn't real.

 

 

That is a lawsuit...?

[Guest hellsten]

http://seekingalpha.com/article/1864861-jcp-ullmans-buy-is-very-meaningful

 

Look at the Imperial upgrade for example. Their downgrade last month created a bottom in the stock and bonds and now that the Company appears to have stabilized, they have quintupled their target price (albeit from $1 to $5).

 

On Oct, 21st Imperial lowered the target price from $5 to $1, now one month later the price target is back at $5. In the same time the stock is up 43%.

[Parsad]

http://seekingalpha.com/article/1864861-jcp-ullmans-buy-is-very-meaningful

 

Look at the Imperial upgrade for example. Their downgrade last month created a bottom in the stock and bonds and now that the Company appears to have stabilized, they have quintupled their target price (albeit from $1 to $5).

 

On Oct, 21st Imperial lowered the target price from $5 to $1, now one month later the price target is back at $5. In the same time the stock is up 43%.

 

Because they are idiots!  ;D  Cheers!

[fareastwarriors]

http://www.bloomberg.com/news/2013-12-03/j-c-penney-says-november-same-store-sales-rose-10-.html

 

J.C. Penney Says November Same-Store Sales Increase 10%