Investing
with the American retail icon J.C. Penny is a long term move. The United States based company has been in decline for years. The stock ended the business session yesterday at $10.13 USD (United States Dollar). The high was $10.34 USD and a low of $10.09 USD. The share price is now heading toward the single digit territory once again. The stock has not been below $10.00 USD since the middle of August. The low for the year was $5.08 USD, which was realized on February 04th. The stock traded at $8.88 USD at the beginning of 2014.
The company has been here before. As recently as February 2012 J.C. Penny shares were trading above $40 USD. In February of 2007 the company’s share price was above $85.00 USD. At the end of December 2000 the stock value of the company had dropped to $9.19 USD. Another high for the company was reached in June of 1998 when the share price nearly reached $78.00 USD.
The Original Store In Wyoming
Such is the fortunes of a company that was founded in 1902. The original home of the company was moved from Wyoming to the present corporate headquarters in Plano, Texas in 1990. The company has some 1,100 department stores located in the United States. The main challenge for the company is to find a niche between upscale competitors like Macy’s and the major discounters Kohls, Target and retail giant Wal-Mart. It is not easy but one should consider that the company survived the Great Depression of the 1930’s.
Sam Walton the founder of Wal-Mart, began his retail career with J.C. Penny.
A long history alone, will not save the company. The example being Montgomery Ward. This American icon was in operation from 1872 to 2000. It was for a time, one of the largest retailers in the United States. The company could also be bought out. This was the fate of Sears, another historical retail giant. Until the end of 1989 Sears was the largest retailer in the United States. By 2005 a reversal of the company’s fortunes led to K-mart purchasing the chain. The company although no longer independent, is still in operation as a department store.
J.C. Penny Headquarters In Texas
The question is there still a large enough market for a mid-range department store like J.C. Penny? Outlets of the store could be found in all 50 states and Puerto Rico (since 1968) before 2004. Operations in Hawaii which were established in 1966, at the end of the national expansion phase of the company, were shut down in 2003. The discount sites have become defunct. Most of the store sites are located in suburban shopping centers and malls. As late as the early 1960’s the stores were to be found in downtown areas. As more of the retail business headed to the suburbs, J.C. Penny followed.
At the peak of the company’s fortunes in 1973, J.C. Penny had over 2,000 stores. It even had outlets in Italy at the time. The Italian operations were sold in 1977. The 1974 recession in the United States hit the company hard. It took several years for the company to recover.
J.C, Penny Stand Alone Store
In recent times the model has changed again. Following consumer traffic the store has opened some stand alone stores in some areas. In some cases they are right next door to some competitors. You can also find them in some power centers, which are large unenclosed mall areas.
J.C. Penny sells traditional merchandise which include clothing, cosmetics, electronics, footwear, furniture, housewares and jewelry. Many of the stores often house several leased departments as well. These include jewelry repair, optical centers, portrait studios and salons. One can also find more trendy brands like Seattle’s Best Coffee (2009) and Sephora (a French cosmetics chain).
The company has also streamlined its catalog and distribution services and is undergoing improvements at the store level. The company is hoping to expand it’s internet retail business which has been in operation since 1998.
J.C. Penny did some acquisitions and sales of different department in the last two decades of the 20th century. The company sold the auto repair shops to Firestone and discontinued the hardware and automotive departments in the 1980’s. In the 1990’s J.C. Penny would expand its drug store business with the purchase of three retail chains. These would include Fay’s Drug, Kerr and Eckerd.
When Sears closed its catalog business in 1993, J.C. Penny became the largest catalog retailer in the United States. In 1998 the company launched its internet store. This segment of the business has grown into one of the largest apparel and home furnishings retail sites on the internet.
J. C. Penny Building In Salt Lake City
In the 2000’s the company sold its insurance arms and the drug stores. This was finalized with the sale of Eckerd in 2004. However, in 2005 for the first time the e-commerce part of the business exceeded $1 billion USD. In 2007 the company launched the Ambrielle lingerie label, which soon became the largest private brand in the history of the company.
Also in 2007 J.C. Penny launched a new public website JCPenneyBrands.com that encompass both the private and exclusive brands of the company. In 2008 came the American Living Brand that was developed by Ralph Lauren for apparel. Also that year, the Linden Street home decor line was introduced. A relaunch of Le Tigre, along with Decree, Fabulosity, and a junior line of clothing by Kimora Lee Simmons took place as well.
In 2011 the company announced it was ending the catalog business and was closing 19 of its catalog outlet stores. Also that year the spamdexing incident which was an attempt to increase the company’s ranking with Google eventually backfired.
Later that year a new CEO was installed Ron Johnson. The 15 remaining catalog outlet stores were sold and the company acquired 16.6% of stock in Martha Stewart Living Omnimedia. The idea was to put mini Martha Stewart shops in the majority of its stores and to start a common website together.
The next 17 months of the Johnson tenure would be tumultuous. The new marketing and pricing strategies did not work well and the stock suffered as a result. Fourth quarter reports in 2012 gave the evidence of this with sales down overall 28.4% and same store sales down 32%.
J. C. Penny Store In Texas
In April of 2013 CEO Johnson was fired and Mike Ullman the former CEO was reinstated. His job would be to turn things around as quickly as possible. Under Johnson the stock had dropped in value by 53.9%.
Later in 2013 the company announced plans to sell 84 million shares of its stock. Soros Fund Management would sell over 19 million shares the same year after owning them just a few months.
On December 01, 2013, J.C. Penny was replaced by Allegion in the S&P 500 Index. The reason stated was the 37% drop in market value of the company. This was now estimated to be $2.7 billion USD. J.C. Penny would now be listed as a mid cap stock.
Total assets of the company as of 2013 was $9.781 billion USD and total equity stood at $3.171 billion USD.
The 2013 year end revenue had dropped 31% in two years.
Closed J.C. Penny Store In Palm Beach Mall
In January 2014 the company laid off 2,000 more employees and closed 33 under performing stores. The cost saving measures and new direction of the company as evidenced in increased sales, helped the stock double in price, since the low in February. Revenue growth is finally returning.
CEO Ullman brought back the labels his predecessor had gotten rid of. He based his decision on what previous customers had bought. At the same time he eliminated a number of new brands that have sparked little customer interest. So far the results have been positive. Sales are finally increasing again. Ullman is also revamping the on-line business, something that Johnson had neglected. Internet sales had fallen to a business quarter average of $215 million USD. After just a mere 6 months under the new CEO sales in this sector of the business have increased 25%.
Great Falls Montana
In the second business quarter of 2014 gross margins improved up to 36% over 29.6% in the same quarter in 2013. When Ullman resumed the helm in the spring of 2013 the company had less than $300 million USD as working capital. In three business quarters it has been increased to $2 billion USD.
Market capitalization at present is $3.12 billion USD. The company trades at a market capitalization that is about 85% of it net assets value. This means the company actually holds more value in inventory that what the markets think the entire company is worth. Under these circumstances and the likely continued progress under Ullman, an investor can assume an increases in share value.
The stock at present is around $10.00 a share. One could expect the share price to double in 2015. This would be an increase of 100%. A $20.00 target would seem quite reasonable under these circumstances. If you would like to be more cautious and see a quicker return an investor could settle for a 50% return with a target of just $15.00 USD.