J.C. Penney Inflection Point For Wealth Or Destruction

| About: J.C. Penney (JCP)

J.C. 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 company's 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 mainstream 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.

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.