Retail Check Up: JCPenney

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-499354522&q; src=&q;×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; (Noam Galai/Getty Images)


&l;span&g;If you&s;ve followed this company over the past few quarters, you know it&s;s been on an &a;ldquo;interesting&a;rdquo; journey. From what appeared to be an existential crisis to several purposeful steps, to the latest reports and news, watching JCPenney strive to stay relevant has proven quite the fascinating observation.&l;/span&g;

&l;span&g;JCPenney reported first-quarter &l;strong&g;&l;a href=&q;; target=&q;_blank&q;&g;earnings&l;/a&g; &l;/strong&g;on May 17, which included an earnings miss and a revenue beat. On the call, Marvin Ellison, chairman and CEO, laid out the deets, which included successes, current projects and upcoming endeavors at the company. Much of it relies heavily on something we all relate to in one way or another: relationships. &l;/span&g;

&l;span&g;Let&a;rsquo;s start with activewear. JCPenney will enhance partnerships with activewear icons including Nike, Puma, and Adidas, and it expects to open Fanatics in 700 of its stores in short order. Unrelated but equally compelling, JCPenney is building up its plus-size offerings through partnerships with Liz Claiborne and basketball star Shaquille O&a;rsquo;Neill. For 2018, the company anticipates growth opportunities in the special sizing department to the tune of $100 million.&l;/span&g;

&l;span&g;In the beauty space, JCPenney added 70 new Sephora locations in 2017 and has added 27 more this year, bringing the Sephora Inside JCPenney headcount to 75% of its stores. Additionally, the company will rebrand or remodel an additional 100 of its salons to the newer Salon by InStyle format.&l;/span&g;

&l;span&g;Two other categories worth noting include the fine jewelry space, which the company said was the highest comping division in the first quarter and it had &a;ldquo;aggressive plans&a;rdquo; for the rest of 2018; JCPenney also announced a partnership with active wearable tech maker FitBit. The two will offer health and wellness products. &l;/span&g;

&l;span&g;It all looked promising until the &l;a href=&q;; target=&q;_blank&q;&g;&l;strong&g;news&l;/strong&g; &l;/a&g;on May 22 that Ellison is departing from the company to take up the role of President and CEO at homebuilder giant Lowe&a;rsquo;s, effective July 2. JCPenney said it is now searching for his replacement and two analysts weighed in with their thoughts. In a nutshell: they&s;re concerned.


&l;span&g;Neil Saunders of GlobalData wrote that Ellison&a;rsquo;s departure &a;ldquo;could not have come at a worse time,&a;rdquo;&l;/span&g;

&l;/p&g;&l;blockquote&g;&l;span&g;&q;The turnaround program that Ellison put in place at JCPenney has partly delivered but is still far from complete. There is now a question mark over how this plan will proceed and, indeed, whether JCPenney will remain on the same trajectory. This uncertainty is bad for both investors and staff.&l;/span&g;


&l;span&g;Ellison&s;s exit will also raise speculation that he is not particularly optimistic about the future prospects of JCPenney and sees the grass as being greener at Lowe&s;s. Indeed, exiting before his plan is complete is a tacit admission that he may not be able to deliver what investors are looking for. This will be particularly damaging to staff morale, especially because Ellison is a popular leader who has connected well with almost everyone he works with.&q;&l;/span&g;&l;/blockquote&g;

&l;span&g;Similarly, Oliver Chen &a;amp; team at Cowen &a;amp; Company said the announcement was &a;ldquo;difficult&a;rdquo; and that Ellison&a;rsquo;s strengths in &a;ldquo;&l;/span&g;&l;span&g;appliance execution and leadership skills will be difficult to replicate.&a;rdquo;&l;/span&g;&l;span&g; The team added: &l;/span&g;

&l;blockquote&g;&l;span&g;&q;We are cautious because in our view securing new retail talent is exceptionally difficult &a;ndash; particularly in the apparel and department store industry given an unexciting need for store closures, difficulty in obtaining sustainable physical store traffic growth, and long-term apparel deflation trends. Also, a leader&a;rsquo;s past performance may or may not indicate success or failure. We expect JCPenney to continue its existing strategy which entails gaining share in appliances, innovating in apparel, amplifying beauty and services, and a focus on omni-channel execution. We believe Marvin is leaving JCPenney for a bigger opportunity and we believe he has an appreciation of appliances.&q;&l;/span&g;&l;/blockquote&g;

In an update on June 1, RapidRatings gave JCPenney a Financial Health Rating of 33 out of a possible 100. The firm wrote that JCPenney is situated in its &q;High Risk&q; group and noted that it had downgraded the company in the most recent period.

&l;div id=&q;exec_summary_bottom_line&q; class=&q;text&q;&g;&q;If current trends persist it would be logical to expect that JCPenney will face serious default risk this coming year,&q; wrote the firm. &q;Although prospects for sustainable efficiency and competitiveness are promising over the medium-term; thus, the outlook is mixed.&q;&l;/div&g;

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&l;div class=&q;text&q;&g;Meanwhile, shares remain under $3 a pop, down over 10% year-to-date.&l;/div&g;

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