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
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.
Image via Wikipedia
Kohl’s (NYSE:KSS) issued an earnings release that showed vastly improved EPS. Yeah that’s just what we want and lets bid up the stock price. Retailer does well. Hmm wait a minute. High unemployment, skittish retail sales, high consumer debt how did Kohl’s manage to be so brilliant.
Look at the balance sheet. Cash is down dramatically. Long term debt is up dramatically. Inventories are in line with last year. As a matter of fact they claim discipline as a retailer. so where has the cash been used. Share repurchases that reduce the float and improve a financially engineered EPS.
They have increased their long-term debt by 50% and then claim interest expense is down in absolute dollars. How is this possible? When interest rates move up they will eventually have to pay the piper through the nose. Short sales still seem very low. Hmmm
Investors should view this company through a caveat emptor perspective.
Image via Wikipedia
Ah boxing day. That crazy time when we work off turkey dinners and shop for bargains. Many people are giving gift cards and waiting for after Christmas making retailers crazy as they mark down trying to stimulate demand right now. The consumer has learnt the lessons of patience and out waits the desperate retailer.
Retailing has become a reverse auction. Cash is king and it has learnt to be slow. Retailers need to counter the strategy. so lets cancel boxing day. Avoid the hassles. Retail staffs hate working that day. It disrupts personal lives and the customers are just plain crazy. Hear that Wal Mart you can save a lot of nickles.
The on line sites can stay open. They are open on Christmas Day anyway, so boxing day is OK too.
If the consumers is cutting back on spending and if the retailer is not buying as much as demand comes down than don’t give it away on boxing day. Announce to the customers first and get them spending now if they want it.
Retailing and merchandising is a big head game. So when are you going to play this card.
OMG families will stay together for two days in a row. God Bless America. Like way more football on TV. Gotta be.
Disclosure: George Gutowski writes from a caveat emptor perspective. I really dislike shopping on boxing day. To the best of my recollections I have not shopped on boxing day for at least twenty years. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.
Talbots (TLB) announced Q3 results. Margins improved that’s good. Sales are down that’s bad. The big guy Trudy F. Sullivan, Talbots President and Chief Executive Officer, said, “…. Importantly, during the quarter, we launched our segmentation strategy and store re-image program in addition to our enhanced marketing campaign. All of these key initiatives are designed to generate sales growth and productivity gains over time.”
No real comment about merchandising issues. Sales dropped and that’s it for discussion and analysis. What lines are selling? What regions are doing well? Same store sales? It’s very hard to get your arms around this story. Productivity gains over time are not concrete.