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How's that queeer ellen working for ya?

redrobin

Well-known member
from seeking alpha
No Country For J.C. Penney
September 26, 2012 | 25 comments | about: JCP, includes: GPS, JWN, M, TGT, WMT

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

J. C. Penney's (JCP) stock price recently plummeted by 11% after its CEO, Johnson, said that tough financial conditions would continue throughout the full year. It is tough to regain customers in an economic environment where competitors are doing their best to attract traffic. JCP's management is trying its best to turn around the retailer's situation, but we are still bearish about the company's prospects, given the challenges it is set to face in future.

Below are the reasons why we are not bullish on JCP, despite the 30% YTD share price decline:

Last quarter saw another earnings miss, with a 22% decline in revenues. Margins have also declined.
Same store sales and traffic were also down for 2Q2012.
Cost cutting is not a long-term solution to the company's troubles, as analysts expect revenues to decline by 18% and 12% YoY in the next two quarters. These revenues include the all-important back to school shopping season for retailers.
Back to school promotions like free haircuts for kids failed to impress customers, partially because the company might have been trying to target additional younger customers, as compared to older and more loyal customers.
The "new shops within stores" transformation had initially showed some positive results, but an assessment just now will be premature because the strategy is still in the process of completion. Only 12 such 'shops within stores' had been opened as of September 1. Despite the reported 20% higher sales at these new 'shops within stores' (mainly denim), CEO Ron Johnson conceded that the "the last two weeks have been much tougher than we planned". The company wants to complete 100 specialty boutiques by 2015, which will not be realized any time soon; there is still uncertainty as to whether the appearance of these stores can induce enough customers to spend.
The replacement of checkouts with mobile and self checkouts will also be wound up by 2014.
The transformation could cost JCP $4-$5 billion. The cash flows needed to support this expenditure will continue to face pressure because of the company's weak financial performance in the short-run. The operating cash flow (trailing twelve months) is a low $39 million, and the total debt-to-equity ratio is 85%; the interest coverage ratio is 3.5 times.
Since our first article on JCP, the short ratio has increased from 4.4 to 5.8 days.
Competitors like Nordstrom (JWN), Macy's (M) and Gap (GPS) have been quick to benefit from JCP letting down its customers. Target (TGT) and Wal-Mart (WMT) are strong home goods competitors.

The present uncertainty regarding the success of the turnaround strategy does not warrant an EV/EBITDA multiple that is more than those of the company's peers. JCP has an EV/EBITDA multiple of 22.5x, as compared to M's 6x, TGT's 8x and GPS's 8x. The 10% increase in the stock price in the last three months is not supported by the deteriorating fundamentals. This makes investing in JCP risky.

The company is in for a lot of short-term challenges before its turnaround strategies start bearing fruit by roughly 2014, if they bear fruit at all that is. These challenges include low traffic, inventory buildups, financing the turnaround measures, and customers taking time to accept everyday low pricing in place of the coupons that were previously the main attraction. In the meanwhile, there is no shortage of choices for estranged JCP customers when it comes to retailers carrying apparel and home furnishings, among other items.
 

Whitewing

Well-known member
I have a question for the JC Penny's CEO, when are competitors NOT doing their best to attract traffic?

What a numbnut.
 

Steve

Well-known member
The replacement of checkouts with mobile and self checkouts will also be wound up by 2014.

that should about wipe out any of the "older and more loyal customers". left after the shift to the "metro crowd" :? :???:

are these store CEO and upper management that stupid..
 

Whitewing

Well-known member
Steve said:
The replacement of checkouts with mobile and self checkouts will also be wound up by 2014.

that should about wipe out any of the "older and more loyal customers". left after the shift to the "metro crowd" :? :???:

are these store CEO and upper management that stupid..

Last time I was in the States I was amazed at how many big department stores seem to be devoid of employees. One can walk around for what seems like an eternity looking for some help with a question, but no, you're on your own buddy.
 

Red Barn Angus

Well-known member
I sure agree about the self checkout deals. If they can't have someone there to say thank you I'll go somewhere that does. Our local Pennys store is a pretty nice store but in the whole store they only have a two or three employees and one of them takes your money. Most are college girls which, while well intentioned, usually don't know a thing about the stock. If the store doesn't care enough about me to hire some help I don't care enough about them to spend my money there.
 

Yanuck

Well-known member
Personally I would rather use a self checkout, clerks that feel the need to visit for 10 minutes with each customer when the line is 10 people deep are just annoying. A clerk that says thank you is rare somedays, I asked a cashier in Costco one day if her check out partner was having a bad day or if was she always that grouchy, the grouchy ones tone improved really quickly surprisingly. Customers who talk on their cell phones while checking out, or those who don't control their darling children who run up and down the aisles playing tag are just a few of my peeves in stores...have I mentioned that shopping is not my forte??!!! :shock: :roll:
 

Faster horses

Well-known member
Was in a furniture store when some people walked in with a couple of kids
who held ICE CREAM CONES. I'm not kidding. The owner asked the people to
leave and return when the ice cream cones were eaten. I didn't blame him
one bit. Ice cream could ruin quite a bit of furniture in a very short time.

Most of the kids running around is the parents fault. I hate it when they
allow their kids to do that. And kids run around in restaurants too...come on
parents, get a clue!!!!!!!

Back to the subject...Penney's dropped their big catalog and their sales
catalog, now we get this MOD super-heavy-super-slick ridiculous trendy
paper that highlights a few things that I'm sure not interested in. I would
almost bet that paper cost almost as much to print as the big catalogs
did. This new CEO is way off the mark. IMO
It's kinda sad. I used to buy a lot from JC Penney, but not any more.
 
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