It has been three years since Ron Johnson was ushered in as CEO of J.C. Penney (NYSE:JCP). His store-within-a-store concept combined with the elimination of sale prices was supposed to be the start of a turnaround that brought the retailer out of the doldrums and back to the halcyon days of profitability. Unfortunately, the subsequent years have been marked with declining sales, strategy reversals, layoffs and huge losses to the bottom line. After three years, it's time to finally admit that JC Penney's turnaround plan isn't working.
CEO Mike Ullman announced on Black Friday that sales were off to a "strong start" pushing the stock price above the $8 mark. A few days later, the National Retail Federation announced that Black Friday sales dropped 11% compared to last year and things have been downhill from there. With retailers starting the holiday shopping season earlier and earlier, year-over-year Black Friday sales may not be a perfect apples to apples comparison but the numbers suggest that the strong start may not have been so strong after all.
And it's right now that J.C. Penney needs to start delivering some real sales growth. Many quarters into this turnaround and the company should be turning in some solid year-over-year sales growth numbers. J.C. Penney in the third quarter was projecting just 2% sales growth and couldn't even hit that number. Flat same store sales comps just isn't indicative of any kind of meaningful recovery. A successful turnaround strategy should be seeing 6% growth or more at this point.
Part of the reason for J.C. Penney's struggles is the same issue that retailers have seen for the last several holidays. They just don't offer the hot products for the season. Shoppers are out looking for electronics and gadgets and tablets and such. The launch of Apple's (NASDAQ:AAPL) iPhone 6 undoubtedly took dollars away from retailers and as retailer inventories start building and the markdowns begin. J.C. Penney has done a reasonable job of moving sale and clearance merchandise out of the stores but it can't just keep rebuilding inventory.
The other issue is that J.C. Penney hasn't really done anything to differentiate itself from competitors like Kohl's (NYSE:KSS) and Macy's (NYSE:M). The store within a store concept has a unique feel to it but it hasn't proven to be a factor that moves the needle and drive customers away from competitors. In the end, it has to put a desirable product on the shelves.
In J.C. Penney's defense, the story has yet to be fully written. We know the National Retail Federation's numbers but we don't know what the company's sales figures actually look like for the Christmas season thus far. A mild winter could play into the company's favor and with 2013's cold weather resulting in dismal sales the stage could be set for a positive year over year comp for the fourth quarter.
But the numbers thus far don't look encouraging. Sales growth should be much higher at this point and while J.C. Penney was able to come in slightly better than expected on third quarter earnings thanks to reduced expenses the future won't change unless the company is able to put good merchandise in the stores and is able to move it out the doors.
I wrote earlier that this Christmas season could be the company's last real chance to demonstrate that things are moving in the right direction. If not, J.C. Penney could be reaching the end of the road.
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