J.C.Penney: A Case Study In Poor IR, Time For Ullman To Step Down

| About: J.C. Penney (JCP)

JCP has some of the worst investor relations that I have ever seen. Reasonable people can disagree (and I have had a robust debate with many here on SA) about the fate of the Company's turnaround effort. Where I can't disagree with the bears is that the IR and PR of Myron Ullman's JCP is beyond atrocious and threatens the very viability of the Company.

I will begin with a brief recent history of botched IR. The mother of all snafus was publicly declaring that the Company didn't need to raise equity and then raising over $800 million in a massively dilutive offering the next day. From that moment, the Company did a better job of IR by simply giving out and meeting guidance and same store sales numbers. After Christmas, which was bad for most in retail, JCP came out with an opaque release saying that they were pleased with the holiday results and would meet or exceed guidance. All well and good except that based on November results, they appeared to be on track to beat of even crush Q4 expectations. Combined with massive misses at comps such as SHLD and BBY, investors have been heading for the hills.

The two most recent releases are bizarre in this context. The Company has announced what I would call fairly routine but welcome news that they were closing about 3% of their store base (saving about $65 million a year in expense). They also announced the lowering of the poison pill threshold to 4.9% to preserve NOLs which is also standard when you have such a large amount of NOLs (over $2 a share in value on a $6 stock). These two releases were nice but non events. However, they were very detailed and specific unlike the most crucial information that was vague - how the crucial December month went and how Q4 is overall.

In the context of a poor market and an abysmal retail tape (see AMZN and MAT for more recent examples), JCP stock has now hit all time lows and the bonds and CDS are weakening as well. I have spent an enormous amount of time talking to debt and CDS traders and other sources and the consensus is that the performance of other leveraged retailers like TOY, BBY, and RSH has spooked the markets and JCP is getting hit as a form of collateral damage. In other words, there is no specific bad news. I do not get the sense that vendors are panicking and the company should be flush with post Christmas cash and liquidity. It is hard to imagine that there could have been a worse outcome from an IR perspective to making guidance for the first time in years and in a brutal macro environment to boot.

The fear of the market is that JCP management after botching IR around the offering has zero credibility and investors are selling rather than trusting Myron. Hedgeye's Brian McGough was one of the last bulls on JCP and he was so disgusted with the Company's IR that he told his clients to sell the stock and has called for Ullman to be fired. I still own the stock and have added recently, but I believe that managing your stock and bond prices is part of a CEO's job - especially for a leveraged retailer whose critical vendors watch market prices. Ullman has failed on this count miserably and should be removed and replaced - ideally by JCP Chairman Steve Sadove, but there are other talented merchants who will do. Thanks for stabilizing the Company, but don't let the door hit you on the way out.

Disclosure: I am long JCP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: positions can and do change without warning or notice