In a major development, J. C. Penney Company Inc.’s (JCP - Analyst Report) board of directors discharged CEO Ron Johnson of his duties, as his ambitious transformational ideas failed to materialize. The company’s former CEO, Myron E. (Mike) Ullman, III has been reinstated to the helm, with immediate effect.
What Triggered the Decision?
Ron Johnson, who was appointed as the CEO with high expectations, was ousted from his position after serving for 17 months. Within this span, Johnson announced a string of strategic measures to bring the company back on its growth trajectory.
A new pricing strategy, fresh logo, strategic merchandise initiatives, reduction in costs, enhancement of shopping experience and customers shopping at their own terms –. Ron Johnson’s turnaround blueprint boasted major initiatives.
Despite these measures, J. C. Penney has been scrambling to remould itself from the way it had operated before Ron Johnson took charge. Shares of this beleaguered department-store chain have nosedived approximately 53% in a year’s span, reflecting sinking revenues and bigger losses.
J. C. Penney’s restructuring initiatives have been crumbling as the company is exhibiting no signs of improvement. Alongside, it is constantly lagging its peers, Macy’s Inc. (M - Analyst Report), Target Corporation (TGT - Analyst Report) and Kohl’s Corporation (KSS - Analyst Report) in terms of performance.
If we look at the earnings surprise history, J. C. Penney has missed the Zacks Consensus Estimate for 5 straight quarters with an average negative surprise of approximately 447.8%.
During the recently concluded quarter, the company posted an adjusted quarterly loss of $1.95 per share compared with earnings of 21 cents in the year-ago quarter. The Zacks Consensus Estimate for the quarter was of a loss of 19 cents.
So what backfired?
Through his bold and strategic modifications, Johnson aimed at simplifying the operational structure of the company, which in turn was expected to generate positive earnings growth and boost shareholders’ value.
Pricing strategy became the key area of focus and the probable cause behind the floundering of the turnaround efforts. Labeling it ‘”Fair and Square,” Johnson came up with a new pricing strategy that was segmented into 3 types of prices – Everyday, Month-Long Values and Best Prices.
The new pricing strategy was aimed at keeping the prices low, and expected to allow the company to introduce new merchandises regularly. Moreover, Johnson announced the implementation of 12 unique and exciting monthly promotional events every year to provide better value to the shoppers.
However, J.C. Penney failed to get a positive reaction from customers for its new pricing mechanism. It is believed that rather than harping on its restructuring efforts, the company should have been more vocal regarding its pricing mechanism and better aligned its marketing efforts to attract buyers.
Shares of J.C. Penney currently maintain a Zacks Rank #3 (Hold) as we prefer to remain on the sidelines until we see near-term catalysts that could induce an improvement in the company’s performance.