J.C. Penney And The Emperor's New Clothes

| About: J.C. Penney (JCP)


Financial professionals and investors recently declared, "J.C. Penney has finally turned the corner."

There is little evidence that any large changes have been made in J.C. Penney's operations since those of former CEO, Ron Johnson, have been reversed.

Interest in J.C. Penney and its proprietary brands seems to be declining on the Internet.

J.C. Penney is experiencing difficulties with unreal pricing, website configuration and customer complaints.

A story very much like what is occurring at J.C. Penney

Hans Christian Anderson, the Danish writer, tells about an Emperor who cared more about lavish clothing than about his empire. His land's finest tailors created extravagant robes for his coronation, which he rejected, as none met his high standard. A pair of unsavory tailors appeared and told the Emperor that they would craft the most exquisite robe ever. It would be so fine that none but the worthy could see it.

They displayed it, but in reality there was nothing to see because the tailors were frauds who made nothing. The Emperor could not see the robe. Not to let anyone know that he was unworthy, the Emperor pronounced it to be the most wonderful garment ever. The coronation crowd agreed, since they did not wish to be seen as unworthy, even though they could see nothing. A little boy ran across the Emperor's coach's path. He looked up and said, "The Emperor has no clothes," and then all knew the truth.

Is J.C. Penney correcting its problems?

So it is with J.C. Penney (NYSE:JCP). Financial professionals and concerned investors are declaring, "J.C. Penny has finally turned the corner." I may be like the lone little boy when I say that J.C. Penney is still distressed. Articles about J.C. Penney's rebirth, its management's restoration of high margins and increased sales volume abound, but the evidence is not present to support them.

Acronyms for the financial analysis of the J.C. Penney organization are thrown about as quickly as the Emperor discarded robes that displeased him.

My wonderment about terms applied to J.C. Penney's operations such as "ROIC" increases when JCP does not show a return on investment, and the use of "EBITDA" amazes me, as JCP has no current earnings.

Recently, Myron Ullman, J.C. Penney's CEO asserted, "Starting in January, Penney will downsize the Joe Fresh shops in its stores" and management stated, "The Joe Fresh Brand is irrelevant." In March, the J.C. Penney website (3/21/14) featured "Brands We Love" logos, which prominently displayed "Joe Fresh" in its center. Why did management decide to downsize and disparage the Joe Fresh brand?

Has interest in J.C. Penney declined?

A well-known monitor of the number of seekers for a specific website is Alexa, an organization owned by the Amazon Company. Alexa rates websites in order of popularity, with site number one as most sought after. During March 2013 J.C. Penney averaged between the numbers 900 and 1300 of the most sought after sites in the world. One year later it fell between the numbers 1500 to 2100 of most popular sites. To test the meaningfulness of J.C. Penny's loss in position, I searched for the Macy's (NYSE:M) and The Home Depot's (NYSE:HD) site traffic. Alexa indicated that quantity of searches for both increased during that time interval. This means J.C. Penney is rapidly losing interest of those who follow its activities.

Google Trends is a more complex measure than Alexa. Because of great skill in the use of statistical methodology, "Trends" is more versatile than Alexa. It shows how interest in a particular search term has proceeded over time. (Scores may not be scaled the same from one search category to another. This means that a score of 28 on Macy's may not necessarily equivocate to a score of 6 on J.C. Penney. Try variations on searches to obtain an extensive view as you investigate).

High score numbers mean more searches have been attempted.

A search on "Trends" for various terms resulted (March 2013 to March 2014 [partial month]) as follows:

Searches on business designations:

J.C. Penney (March 2013) 6 (March 2014) 4

jcpenney.com (March 2013) 9 (March 2014) 7

Macy's (March 2013) 28 (March 2014) 29

Searches on J.C. Penney proprietary brand names:

St. John's Bay (March 2013) 16 (March 2014) 8

Liz Claiborne (March 2013) 5 (March 2014) 3

Search on "Sephora," a popular brand at J.C. Penney:

Sephora (March 2013) 52 (March 2014) 55

It would be interesting to discover if the interest in "Sephora" can be attributed to J.C. Penney boutiques or to Sephora's own shops.

Interest in J.C. Penney and its private brands seems to be decreasing over the past year. This condition counters management's claim that an installation of merchandise with these brand names has assisted with revitalization of J.C. Penney.

Difficulties facing the J.C. Penney organization

An allegation that J.C. Penney has been inflating prices, then reducing them has been made by an ex-employee. This is more serious a charge than the admission made by its former CEO Ron Johnson about the unreality of its original prices. If true, this accusation opens J.C. Penney to possibly violating the law and becoming involved in a class action lawsuit by its customers.

J.C. Penney's website for floor care products featured a Dyson vacuum cleaner. I discovered at the bottom of the Dyson page a link provided by Google advertising to a vendor that undercut J.C. Penney in price:

Up To 40% Off Dyson Vacuum Cleaners - www.interiorsbuyer.com/‎

To allow competitive advertising to be displayed on J.C. Penney's internet site demonstrates that J.C. Penney is not monitoring its business well. Other products such as sofas and electronics on the J.C. Penney site also display Google advertising. Both categories had links to competitors.

The display of competitive advertising on J.C. Penney's website should be so disturbing to viewers that they must question what remediation J.C. Penney is actually accomplishing.

Although prevalence of consumer complaints on the internet does not always mean reliable reporting, if one clicks on a Consumer complaint site, he will discover a site that indicates 96% of 683 complaints about J.C. Penney are about substandard services. This shows a large amount of consumer dissatisfaction.

Determination of J.C. Penney's future approaching

Success or failure will depend upon what improvements to operations J.C. Penney management is undertaking, not upon what analysts are predicting nor about what informative articles claim.

Be careful, and do your own due diligence with every penny that you invest. You will greatly increase your chances of investment success.

This report does not reference J.C. Penney's 10K filing of March 21, 2014 (February 1 date), nor evaluates its CEO, Myron Ullman's, recent increase in salary. Both may be of interest to you.

Disclosure: I am short 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.