JCPenney Bankruptcy Coming Soon $JCP $XRT

JCPenney Co Inc. (NYSE:JCP) sits on the cusp tottering into the black abyss of bankruptcy. American retailers say someone has to go. JCPenney is a good candidate. Hedge fund resigns from board after its determined he has not been effective in increasing shareholder wealth. Chosen crown prince from Apple has also left the field. A huge secured term loan has been arranged to maintain liquidity. Earnings release talks about liquidity and how current management is trying to fix olde managements problems.

The only attempt at optimism is “Back to School” sales look optimistic. Everyone knows retail is all about Christmas. The buying should be substantially done about now but management is not talking yet.

The company is living on borrowed time. The retail equivalent of “Battle of the Bulge” is on. Must do desperation with an everything must work ethos is at work.

Watch for signs of bankruptcy within management comments as they extol the virtues of what may become strong points such as retail locations or logistics. They will try to enhance value to bankruptcy buyers who will be prepared to pick up pieces.

Watch for store activity, check out lines, how many parking spaces are used and how ell the rest of the mall seems to be doing when JCPenney is an anchor tenant.

There simply is no tomorrow for this one.

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti

JCPenney Bearhug From Cit Financial. I Smell John Thain $JCP $CIT $CIT

New York Post struck a blow for headlines and jeopardized thousands of jobs by reporting that CIT Group (NYSE:CIT) is squeezing JCPenney suppliers. Subtext: The all important Christmas season is coming. If you understand retail supply chain logistics the Christmas season is happening right now.

JCPenney (NYSE:JCP) has had well documented problems. William Ackman the renowned hedge fund activist wheeler-dealer has a famous long position which he may be re-cogitating. Senior officers are changing at JCPenney. JCPenney has also stopped issuing monthly sales data and therefore visibility for suppliers and the credit structure behind them is more complicated. Clear as mud.

So the word is Cit Group is squeezing credit for suppliers. New York Post has the scoop! No one is talking official like. Will this become a Reg FD issue. JCPenney has no control and no direct knowledge of the true circumstances. CIT Financial probably does not need to disclose anything because this is not material to them. William Ackman is probably drinking a double shot of single malt right.

What’s it all mean. Is JCPenney that different now from say a few weeks ago? Probably not.

I smell John Thain the former big shooter that sold Merrill Lynch to an unsuspecting Bank of America. (NYSE:BAC) Former CEO of NYSE and a President and Co-COO of Goldman Sacks (NYSE:GS)  is sort of hanging out at CIT Group until something better comes along.

Has he crossed swords with William Ackman or is there a bigger game going on. Methinks bigger game.

By the way releasing the story when the market is traditionally the most volatile is suspicious.

Machiavellian moves within an enigma.

George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti or follow his evil twin brother who writes Wall Street Murder Thrillers @georgegutowski

Hedge Fund Ultimate Behaviourial Bias = Retail $SHLD $JCP $XRT

The greatest enemy of investors is behavioural bias. Hedge Fund managers those that do well have been able to identify and control their behavioural biases. Cold hearted, flinty eyed even psychopathic they are here for the buck and only the buck.

Roger so far. So how come two major forays into retail are far from stellar successes. Sears Holdings (Nasdaq:SHLD) with Eddie Lampert 51 and William Ackman 45 rebuilding JC Penney (NYSE:JCP).

You can say a lot of things about these two individuals but stupid is not one of them. Yet the big bet investments have yet to start looking good.

Why is that?

Here is my very biased very opinionated answer.

Rich guys do not understand stores or retail. They have unlimited amounts of personal funds. They go into a store and they just buy it. Pair of shoes sure. Some new suits and a dozen fresh shirts and silk ties no problemo. So when they analyze or think they are analyzing retail they have that blind spot of enormous wealth.

The average well to do millionaire knows his wealth is somewhat limited. Not on food stamps but there are limits and they know them. The average working man is pay cheque to pay cheque and so goes retail.

Hedge Fund Billionaires believe there is a magic formula; just like you know, an algorithm running a high frequency black box which will make exactly the right choices and just move on.

So buy control, fire the old idiotic managers who screwed up and hire new bright pennies who promise not to screw up and there you have it. People will just come in and buy stuff if you manage it properly right.

They have forgotten the utility value of a dollar to a billionaire is very different to people living pay cheque to pay cheque which adequately describes America’s consumer class.

And that ladies and gentlemen is the rationale for hedge fund behavioural bias when considering retail as an investment.

Most creative fresh retail concepts have been started by rebels and out of the box thinkers. Not by the monied classes. Very few rich kids become cutting edge designers who build big labels.

So Eddie Lampert and William Ackman will probably not make mega billions and will gladly exit as soon as hubris allows.

George Gutowski writes from a caveat emptor perspective. I have a behaviourial bias about retail investment. I actually view retail as risky because I cannot guess at the next big thing. I usually rely on beautiful women to guide me in these matters.

JC Penney Inflection Point for Wealth or Destruction. Financial Media Short. Ackman Goes Long $JCP $TGT $AAPL

English: From jcpenny.com

English: From jcpenny.com (Photo credit: Wikipedia)

JC Penney (NYSE:JCP) came out with some harsh numbers last week. Sales at the iconic retailer fell by some 26% and there were losses of some $123 million. Doesn’t sound like the place to create shareholder wealth. The business media continues to wring its hands over the challenges and complexities. The financial buzz is well  “difficult”

Time for some financial skepticism. Yes the retailer has lost its way and could not merchandise its way out of a wet paper bag. But an activist shareholder is kicking ass. Pershing Square’s Bill Ackman is now the companies largest shareholder and he personally recruited Ron Johnson of Apple (Nasdaq: AAPL) fame and before of Target (NYSE:TGT). Bill Ackman is mildly interested in what the financial press of the day are saying. If anything the more negative the press the more confident he probably becomes. That’s called contrarian investing. You know: going against the herd.

So here is the inflection point. Transformed stores are making $269 in sales per square foot, vs $134 in sales per square foot in the older stores. So the model itself is working by a factor of 2:1. No retailer has a similar resurrection story.

When main stream financial press is short savvy investors are long. Which one are you? Money flow is on the nose at 1.0. Short sales have shrunk some 7.38%. Shorts are still 28.51% of the float which is ultimately bullish. Picking what colour of shirt will sell well six months in advance is damn difficult.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti

Special Disclosure: I recently bought a rain jacket at JC Penney. I shopped at several of the majors and could not find what I wanted. I have not spent money at JC Penney for years. Now I’ve had a positive experience.

Proctor & Gamble firewworks about to go off. $PG

Go! Go! Ackman

Go! Go! Ackman (Photo credit: Wikipedia)

Proctor & Gamble (NYSE:PG) fireworks may soon be going off. Long considered a marketing machine from which all others emulated or just copied they have attracted the attention of activist hedge fund owner Bill Ackman of Pershing Square. As in $2 billion dollars of interest. With his track record many already view P&G suspiciously.

Lets take a look at a few issues that probably attracted Pershing Squares attention.

Five members of the board (out of ten) are active serving CEO’s of major companies. It is highly unlikely that they have the time to really scrutinize P&G. Also serving CEO’s are unlikely to rock the boat and undertake lobbying campaigns to proactively change issues. They also fill nine of fifteen committee memberships on the board’s three key standing committees

Since Robert McDonald became CEO of P&G in July 2009, operating income has collapsed 12% from $15.2 billion in 2009 to $12.3 billion in 2012 EPS is also collapsing have fallen from $4.49 to $3.82 (down 15%) over the same time period. Clearly this is not creating wealth. Robert McDonald has announced a major restructuring and cost cutting program. but you have to wonder why it took so long.

In 2012, P&G insiders have sold over $38.5 million of shares. In fact, since the beginning of August, insiders have already dumped over $33 million worth of stock. Last year  insider sales at Procter & Gamble totaled less than $3.7 million. Money does talk the loudest.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti

 

Target wishful thinking mixed messages for shareholder activists $TGT #target #activistinvestors

Logo of Target, US-based retail chain

Image via Wikipedia

Target Corporation (NYSE:TGT) reported Q2 results and believes investors should be encouraged. But listen to this masterful spin by the senior guy. And I quote

“We’re very pleased with our second quarter financial results, which benefited from an acceleration in the pace of our comparable-store sales growth,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”  [bolding is mine]

There are good environments and there are bad environments and then there is the stuff in the middle which elicites lots of buzzwords as we all fumble around until someone turns on the economic lights.

Target is a retailer with inherent cyclical risk. Merchandise decisions are made quarters in advance. Christmas has already been decided for the most part. Sure there are a few outs in some of the buying orders. Then you can discount and trash your margins if you still have it wrong.

By saying that Target will do well in a variety of environments that’s a pretty big promise. In a bad environment people stop spending money. What do you do then? I know you have an activist shareholder who thinks he can manage your stores better than you can. Bill Ackman of Pershing Square wants to tell you what to do. Just look at Eddie Lampert and Sears and see how difficult merchandising really is. 

CEO’s need to be careful when they are trying to be careful about how they manage mixed messages into the market place.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in thsi post. I have no plans to initiate new positions within the next 72 hours. I do on occassion shop at Target.