Today, during JCPenney’s dismal Q2 earnings call, there was one ray of light, and it was all thanks to the most hated man in the JCPenney universe, hedge fund manager Bill Ackman.
If you’re an Ackman hater, just bare with us here. The store reported a revenue miss with numbers coming in at $US2.66 billion when analysts expected $US2.78 billion. The company also reported a big net loss of $US2.06 per share, worse than $US1.07 loss analysts expected.
But at least they’ve got Sephora — anyone listening to the call was reminded of that over and over again. The high-end makeup store that Ackman insisted on introducing to JCPenney during his extreme makeover of the retailer is the only thing CEO Mike Ullman and company could point to as a success.
See, while Sephora was introduced to JCPenney in 2006, its expanded presence really took center stage as part of Ackman’s plans for the store. JCPenney’s current leadership has admitted as much before too. Back in June Ullman said that even though it was thought customers weren’t “going to understand it. Now it’s the most profitable part of the store.” Ackman said he knew it would be back in June of 2012, when he was talking about his JCPenney stake at CNBC’s Delivering Alpha Conference.
But none of this means Ullman wants to invest more in Sephora-like successes at JCPenney. How do we know this? Because his focus during the call was on regaining the Baby Boomer, bargain brand customers he lost — not on gaining new hip Sephora-type customers Ackman was trying to attract.
Those are the customers that are bringing energy into an otherwise tired business.
You can see the disconnect here. The little capex Ullman said JCPenney would spend in 2014 (around $US300 million compared to the over annual $US700 million its spent over the last 5 years) is going to be spent on getting more Sephoras (sounds good) and making sure the old customers are happy (sounds like more of the same).
So yes, Bill Ackman was right on this one. He just went about it the wrong way. As Brian Sozzi, CEO of Belus Capital Advisors pointed out, Macy’s is modernizing — getting hipper and cooler the way Ackman wanted JCPenney to do it — but Macy’s is doing this gradually.
And more importantly, Macy’s is making the hip new vendors pay for it.
You win some, you lose some.
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