J.C. PENNEY CO. INC. $13 (New York symbol JCP; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 220.4 million; Market cap: $2.9 billion; Price-to-sales ratio: 0.2; Dividend suspended in May 2012; TSINetwork Rating: Extra Risk; www. jcpenney.com) operates more than 1,100 department stores in the U.S. and Puerto Rico. It also sells goods online.
Over a year ago, the company switched to an everyday low prices strategy. It felt the move would entice shoppers to come into its stores more often and not wait for clearance sales.
However, the plan alienated Penney’s regular customers. In response to a sharp drop in its sales, the company switched back to its original marketing strategy.
So far, the switch back has had little impact on Penney’s sales and earnings. In the company’s fiscal 2014 second quarter, which ended August 3, 2013, its losses ballooned to $2.16 a share from $0.37 a year earlier.
The company had to mark down merchandise purchased under its failed strategy. Partly due to these clearance sales, overall sales fell 11.9%, to $2.7 billion from $3.0 billion. Same-store sales also declined 11.9%. Still, that’s a big improvement over a 21.7% drop a year earlier.
Uncertainty over the involvement of activist investment firm Pershing Square Capital Management, which helped bring in the failed strategy, has also weighed on Penney’s stock. Due to a dispute over the company’s future direction, Pershing is now selling its entire 17.7% stake in Penney. The news will probably put more pressure on the shares.
In response to these events, Penney has now adopted a shareholders’rights plan, or “poison pill.”
This plan will let existing shareholders buy new shares at a discount if a hostile bidder acquires more than 10% of the company’s outstanding shares. The extra shares would then drive up the cost to a potential buyer. The plan will expire on August 20, 2014. However, these poison pills tend to protect management more than investors.
J.C. Penney is still a hold.
