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JCPenney’s had quite the roller coaster ride since CEO Ron Johnson took over in January, and things got considerably worse with the company’s earnings release this morning. Sales are bad, customers are confused and the company’s capital structure is troubling, according to Brian Sozzi, chief equities analyst at NBG Productions.
He pointed out some of the most concerning things about JCPenney following the earnings announcement:
- JCPenney could be headed for financial trouble. “JC Penney may have to raise capital or consider removing itself from the public markets (getting certainty of value for shareholders instead of staying public and hoping the turnaround brings to surface unrealized value),” Sozzi said.
- Back-To-School sales were bad. It might take promotions to get shoppers into stores, revealing a big flaw in Johnson’s strategy.
- JCPenney has changed what kind of store it is. “JC Penney now bills itself as a “specialty department store.” If this is the feeling inside the organisation it’s a major problem. It can’t operate in that manner given the huge square footage of the department store. The company, if it wants to be a specialty store, should split the store in half and lease out the other half to Whole Foods,” Sozzi says.
- The sales gains in the shop-in-shops aren’t enough to offset bad results everywhere else. Even though those stores are killing it, the majority of JCPenney’s revenue doesn’t come from them.
Sozzi says he’s assuming the worst of JCPenney at this point because “it will help to spot any green shoots in the turnaround.”
Approaching the holiday season, competitors like Target and Macy’s are already ramping up the promotions. For now, JCPenney’s strategy seems to be backfiring.
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