Author Topic: JCP - JC Penney  (Read 189425 times)

gfp

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Re: JCP - JC Penney
« Reply #20 on: July 19, 2012, 09:24:30 AM »
"The yield at current price is also very attractive at 4%"

No yield, no dividend anymore.


bathtime

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Re: JCP - JC Penney
« Reply #21 on: July 19, 2012, 09:42:46 AM »
Prior to Apple, Johnson was VP of Merchandising at Target, so he does have a successful record in clothing retail.

http://management.fortune.cnn.com/2012/03/07/jc-penney-ron-johnson/

JRH

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Re: JCP - JC Penney
« Reply #22 on: July 19, 2012, 11:02:15 AM »
Personally, I put no value in a liquidation scenario and would not rely on it in any circumstances for an investment thesis in JCP.  It is only in very specific situations where a liquidation can be counted on to take place before substantial and ongoing damage takes place as a business' management attempts (and, history shows, usually flounders) to turn it around.  Certainly, the presence of Ackman on the board makes that scenario MORE likely if things go downhill, but I still think it is too uncertain to bank on in any reasonable way.

There could be financial engineering (leveraging up the real estate for buybacks/dividends), but they would essentially be liquidating their competitive advantage to their shareholders.
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txlaw

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Re: JCP - JC Penney
« Reply #23 on: July 19, 2012, 11:17:56 AM »
It kind of looks like Sears #2. At least, Ackman has already employed what looks like a competent retail man to run the show instead of interfering with the on-going business. Although IMO, for the stock price to move up a lot, you will need to see improved operating results and not some sort of financial engineering. Hence the importance of Johnson. The issue here is your downside protection and when do they pull the plug if the turnaround fails to sell the real estate? 5 years from now? What will be the value of the real estate then combined with potentially large accummulated earning losses?

Cardboard, I think you hit the nail right on the head.  JCP is Ackman's version of Sears, except that JCP does not have the same level of intangible IP as Sears (KCD) and is less financially engineered. 

Ackman's statement about a potential 15 bagger is very intriguing but, of course, super optimistic.  I suppose if JCP starts churning out sales per square foot on the level of specialty stores and increases its footprint, the 15-bagger scenario is a possibility, as operating leverage could be stupendous.  Clearly, that's what Ron Johnson is going for -- he is trying to actually revolutionize mall retailing by successfully implementing the store within a store concept in a way that will draw shoppers despite the increasing shift to online sales.  If anyone can do that, Ron Johnson is the guy, although maybe he cannot be successful in this environment.

As for a liquidation scenario for JCP, as with SHLD, I would suggest that the downside case should more appropriately be labeled a runoff scenario, where stores are squeezed for every last bit of cash, leases are sold back to malls (who would pay JCP to replace them with a successful anchor tenant that drives traffic and, therefore, generates more profit), and owned real estate is sold off. 

I have been watching and am considering taking a small position in JCP.

DCG

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Re: JCP - JC Penney
« Reply #24 on: July 19, 2012, 11:26:20 AM »
I wouldn't buy as a bet on Ron Johnson, but I do believe he is extremely competent and will work hard.  That doesn't guarantee anything but I believe he will admit real mistakes when they are made.  In other words, he has me sold that their general strategy is still compelling.


I'm sort of the opposite. I want to put my money behind Ron Johnson, but don't have a ton of faith of the economics of the business.

-And i've never been a fan of using liquidation value of the real estate as a good way to value a company. Liquidation values are pretty much always greatly overstated. I read just a couple weeks ago that REITS and other owners of large box-store properties are having a real hard time selling them and even renting them. Companies are looking for smaller retail spaces, not larger. What new large department stores are popping up that would buy a lot of box-store properties in malls (I've made this same argument with Sears and KMart for a while)?

That said, I've been keeping a close eye on JCP recently.

-Has anyone been in a JC Penny where they've rolled out their new floor model?
« Last Edit: July 19, 2012, 11:41:53 AM by DCG »

PlanMaestro

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Re: JCP - JC Penney
« Reply #25 on: July 19, 2012, 12:05:33 PM »
In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, "I don't see the use of this; let us clear it away." To which the more intelligent type of reformer will do well to answer: "If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.

- Chesterton's fence in "The Thing, Chapter 4, Why I am a Catholic"


I worked in corporate strategy for a department store and I think there are many reasons to be skeptic of Johnson's plan. There is a chance, but the odds are heavily against him. Besides, it looks to me that he learned not just good things at Apple. The following quotes remind me of someone's reality distortion field:

"We will put a big bear hug around middle America, and take them to a place they never thought they could get to. Middle America appreciates great design."

"If you put the customer first, you don't care where they buy, but you do care that they buy. You can't put pressure on them...you have to look into their heart, not their pocketbook,"

"between an online-only store or a brick-and-mortar retailer, "I take a physical retailer in a heartbeat"

“He said he is bullish on physical retailing, and predicted that online retailing, just like catalog shopping a few decades ago, will eventually reach a plateau. He said different categories of retailing will level off at different points, and that ‘the physical store will have a permanent place.’


There is a place for all that and it is called specialty retailing, where speed and flexibility are key therefore stores are much smaller than Penney's  and the mortality rate is higher. A place of darwinian forgiveness.

He is fighting battles of a higher order of magnitude than for example The Gap. I would put this turnaround in the cold as Dante's hell category, and if I decided to invest I would check very carefully the margin of safety provided by the real estate, cheap leases, and financial structure ... they might need all the help.



« Last Edit: July 19, 2012, 04:48:28 PM by PlanMaestro »

txlaw

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Re: JCP - JC Penney
« Reply #26 on: July 19, 2012, 12:44:48 PM »
In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, "I don't see the use of this; let us clear it away." To which the more intelligent type of reformer will do well to answer: "If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.

- Chesterton's fence in "The Thing, Chapter 4, Why I am a Catholic"


I worked in corporate strategy for a department store and I think there are many reasons to be skeptic of Johnson's plan. There is a chance, but the odds are heavily against him. Besides, it looks to me that he learned not just good things at Apple. The following quotes reminds me of someone's reality distortion field:

"We will put a big bear hug around middle America, and take them to a place they never thought they could get to. Middle America appreciates great design."

"If you put the customer first, you don't care where they buy, but you do care that they buy. You can't put pressure on them...you have to look into their heart, not their pocketbook,"

"between an online-only store or a brick-and-mortar retailer, "I take a physical retailer in a heartbeat"

“He said he is bullish on physical retailing, and predicted that online retailing, just like catalog shopping a few decades ago, will eventually reach a plateau. He said different categories of retailing will level off at different points, and that ‘the physical store will have a permanent place.’


There is a place for all that and it is called specialty retailing, where speed and flexibility are key therefore stores are much smaller than Penney's  and the mortality rate is higher. A place of darwinian forgiveness.

He is fighting battles of a higher order of magnitude than for example The Gap. I would put this turnaround in the cold as Dante's hell category, and if I decided to invest I would check very carefully the margin of safety provided by the real estate, cheap leases, and financial structure ... they might need all the help.

Interesting perspective, Plan. 

Yes, I think that runoff scenario is key here, as with some of these other companies that we discuss on the board (RIMM, SHLD, etc.).

But what do you think of the notion that by being a space for specialty retail stores, JCP takes some of the risk out of being killed by the substantial change occurring in the retail industry? 

To take the Apple analogy a bit further, it seems to me that JCP is trying to become a "curated" space for specialty retailing.  There will be staple stores owned by JCP and partners -- analogous to the built in apps that everyone uses on their iPhone and the most popular apps, such as Google Maps and YouTube -- and a changing mix of specialty stores fitting within relevant categories based on customer interest and JCP's take on which of these stores are providing great design at great prices to the end user -- akin to featured apps in the App store.

The interesting thing about the reality distortion field that Ron Johnson is clearly vibing is that although everyone realizes that some of the stuff presented is wacky, it may be inspiring to personnel.  I wonder if Johnson will be successful in inspiring his staff to get this turnaround done, unlike say an Eddie Lampert who seems to have an attrition problem.

maxprogram

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Re: JCP - JC Penney
« Reply #27 on: July 19, 2012, 02:41:40 PM »
As a shareholder, I put 0% weight into any type of run-off situation or play on real estate.

I agree that the situation is similar to Sears (T-10 years) and that's the real reason the Sears investment hasn't worked so far: it has been treated as a slow liquidation and investors have overestimated the value in that scenario.

Value of JCP real estate is probably around the current price or higher, but it would take many years (like Sears) and lots of headache along the way. This is why I don't think any current shareholder of JCP should have real-estate-monetization as any part of their thesis. If this scenario starts to play out, I will (gracefully) admit defeat, and move on.

Even @ $20 you are no doubt betting on a turnaround. It is essentially investing in a retail startup, with the following differences:

Advantage: great (experienced) senior managers; sufficient financing 2+ years out; existing good locations; existing supply/distribution.
Disadvantage: bureaucracy; prior brand association.

Can the advantages overcome the disadvantages? Johnson et al could have easily started a truly new retailer from scratch -- they have more than enough money and connections. But they chose to use JCP instead, probably for a good reason. Time will tell if they made a good choice.

EDIT: I tackle the pricing hiccup in this post: http://www.futureblind.com/2012/07/jcpenney-a-transformation/ if anyone is interested.
« Last Edit: July 19, 2012, 02:46:19 PM by maxprogram »
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PlanMaestro

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Re: JCP - JC Penney
« Reply #28 on: July 19, 2012, 03:09:24 PM »
But what do you think of the notion that by being a space for specialty retail stores, JCP takes some of the risk out of being killed by the substantial change occurring in the retail industry? 

To take the Apple analogy a bit further, it seems to me that JCP is trying to become a "curated" space for specialty retailing.  There will be staple stores owned by JCP and partners -- analogous to the built in apps that everyone uses on their iPhone and the most popular apps, such as Google Maps and YouTube -- and a changing mix of specialty stores fitting within relevant categories based on customer interest and JCP's take on which of these stores are providing great design at great prices to the end user -- akin to featured apps in the App store.

The interesting thing about the reality distortion field that Ron Johnson is clearly vibing is that although everyone realizes that some of the stuff presented is wacky, it may be inspiring to personnel.  I wonder if Johnson will be successful in inspiring his staff to get this turnaround done, unlike say an Eddie Lampert who seems to have an attrition problem.

It would be a long answer but let's just say that "we" made the money in private label and financing (and extras like extended warranties). The profitability of stores-within-the-store like MAC, Polo, Natuzzi, 7 for all Mankind, Apple , is just OK after subtracting concessions. We had them for the cool factor and they attracted new customers that you hoped to cross sell.

Invert the question, why all these cool kids (and I mean the cool brands) would like to be in a Department Store? Just for the money is not a good answer. There are advantages of being a curator. When the cool brand loses the cool factor it dies, while the department store can move to the next cool thing. But that is not where the money is made.

I lived in the US in the mid-90s and the department store was already dead at that time. I think any discussion on the possibility of a revival should start from understanding the economic forces.  Christensen's "Innovators Dilemma" and "Innovator's Solution" are a good place to start.  I also like the historical perspective in Tedlow's "New and Improved" of Sears and A&P (compared to Coke and GM).
« Last Edit: July 19, 2012, 05:17:18 PM by PlanMaestro »

jberkshire01

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Re: JCP - JC Penney
« Reply #29 on: July 19, 2012, 03:13:44 PM »