JC Penney (JCP) CEO Ron Johnson's former Target (TGT) coworker Michael Francis announced his resignation from his role of President at JC Penney on Monday. Francis had only been with JC Penney since September 2011, and in just that short time, he managed to collect around $10 million in compensation (had he stayed, it could have been $45 million). Ultimately, this will not change our fair value estimate of the beleaguered retailer, but we do not think this move is positive.
Francis joined JC Penney when Ron Johnson took the helm (after initially starting with Marshall Field, which was acquired by Target, known as Dayton-Hudson at the time). He spent just over three years as Chief Marketing Officer at Target, after working his way up the chain during the past several years. Francis doesn't appear to be one to rapidly shift careers. This could mean that he thought it was best to leave a sinking ship, in our view, or that his marketing strategy that he put in place was a failure. JC Penney may be moving in a different direction.
Ultimately, it will be interesting to see whether JC Penney stays the course with its marketing strategy, or if it reverts back to discounting. Regardless, we think shares of the retailer are fairly valued at current levels, even after pulling back from over $40 per share. We had not bought into the hoopla surrounding Ron Johnson joining the firm and had held our fair value estimate on JC Penney in the mid-$20s since January of this year. It would take a significantly cheaper valuation for us to get excited about the firm. If we were forced to own a name in multi-line retail, we'd prefer Kohl's (KSS) on the basis of valuation. But we wouldn't expect to add even Kohl's to the portfolio of our Best Ideas Newsletter anytime soon due to its mediocre Valuentum Buying Index score, which considers the intrinsic valuation of the firm.