Apple Guy Reaches For the Storm Windows at JC Penney: Bigger Revolver, Employee Sniping

With shares trading near a five-year low, JC Penney (JCP) looks cheap. But as the department-store chain makes yet another about-face in strategy, its business also looks increasingly risky.

Just last week, JC Penney Chief Executive Ron Johnson was grinning his way through a CNBC interview, insisting the company had plenty of cash to carry out his unorthodox turnaround plans. Johnson, the former retail chief at Apple (AAPL), has struggled to wean customers off discounts as JC Penney installs new brands in remodeled “shop-in-shops.”

Brushing off questions about the chain’s dwindling cash on hand, Johnson pointed out that JC Penney didn’t touch its revolving credit line last year. “We said we’d end the year with about $1 billion in cash,” he said. “In a couple of weeks, we’ll tell people exactly where we ended up.”

Where the company ended up may not be a good place. Late Tuesday, the retailer quietly notified investors that it had struck a deal in January to boost its revolver to $1.85 billion from $1.5 billion. “These hurried actions are not indicative of a financially healthy company,” said Carol Levenson, director of research at Gimme Credit, a corporate-bond analysis firm, to the Wall Street Journal.

Normally, if a troubled retailer makes it through the holidays, executives can breathe a little easier for a while. Still, Penney’s cash position and stock price are both in rough shape, as this stock chart shows:

JCP Cash and ST Investments Chart

JCP Cash and ST Investments data by YCharts

And a group of riled-up creditors is claiming JC Penney violated the terms of some bonds by pledging inventory as collateral, as Ycharts wrote previously.

Meanwhile, Johnson is waffling on one of his key strategies: “everyday low pricing.” He’s bringing back sales around holidays such as Valentine’s Day and doling out coupons, admitting his notions of retraining customers drove them away instead. “I’ve learned just a ton of lessons,” he told CNBC.

Investors probably wish those lessons hadn’t cost Penney $4 billion in sales:

JCP Revenue TTM Chart

JCP Revenue TTM data by YCharts

Johnson may be losing more than revenue; he also seems to be losing his grip on JC Penney. The New York Post is publishing anonymous employee gripes that Johnson jets in from California for a short work week and stays at the Ritz-Carlton on the company dime.

When underlings start mouthing off publicly about the CEO, watch out. Employees may not be counting on their jobs, anyway, amid reports that J.C. Penney plans to lay off a chunk of its headquarters staff. (Johnson wouldn’t comment on the layoff news on CNBC, calling the reports “rumors.”)

Those willing to gamble on JC Penney shares note that the company is starting to roll out new merchandise lines, beginning with Canadian brand Joe Fresh next month.

Given the drop in the stock price, it now costs half as much to buy each dollar of JC Penney’s sales as it does to buy one dollar of sales of rivals Kohl’s (KSS) and Macy’s (M):

JCP Price / Sales Ratio TTM Chart

JCP Price / Sales Ratio TTM data by YCharts

At the same time, Penney’s investors are buying a lot more risk per share, especially after the past week’s news. JC Penney plans to report fourth-quarter earnings on Feb. 27, and Johnson will be holding a conference call to field questions from investors. We think they might have a few.

Amy Merrick, a contributing editor at YCharts, is a former staff reporter for the Wall Street Journal, where she spent 11 years writing about the Midwest economy, state and municipal finances, and the retail and banking industries. Her work has been published in the Poynter Institute’s Best Newspaper Writing series. She can be reached at editor@ycharts.com.

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