Are J.C. Penney Investors Anxious for the Apple Turnaround Touch?

Thursday marked the one-year anniversary of Ron Johnson being named the new CEO of J.C. Penney (NYSE:JCP). Since the former Apple Inc. (NASDAQ:AAPL) marketing executive officially took the helm in November, the relationship has been anything but smooth between Penney and shareholders.

The Texas-based retailer is in the process of a difficult turnaround. At the beginning of the year, J.C. Penney said it would improve its business by implementing a much simpler pricing strategy, applying new marketing initiatives and bringing a store-within-a-store concept to outlets. Expectations were set even higher after Johnson said Penney’s non-GAAP earnings would meet or exceed $2.16 per share. Furthermore, he outlined $900 million worth of cost-cutting measures. Investors cheered the plans in January and February, but the optimism has faded in recent months as data proved this will not be an overnight turnaround.

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Retail sales have been relatively weak across the board. The Commerce Department recently reported that U.S. sales in May declined for the second consecutive month. However, the results at J.C. Penney have been even more worrisome. Last month, the retailer announced that sales at stores open at least a year fell 19 percent during the first-quarter. J.C. Penney also reported an earnings miss and a drop in revenues. “Sales and profitability have been tougher than anticipated during the first 13 weeks,” explained Johnson. The company no longer expects to meet its annual GAAP earnings guidance of $1.59 per share, but still believes it can hit the non-GAAP guidance of $2.16 per share.

As the chart above shows, J.C. Penney has been torn to shreds this year by investors. After hitting as high as $43 in February, shares have been cut by 43 percent. Meanwhile, Macy’s Inc. (NYSE:M) shares have bounced 12.06 percent higher year-to-date. Retailer giants Wal-Mart Inc. (NYSE:WMT) and Target Corp. (NYSE:TGT) have outperformed with the two jumping 13.37 percent and 14.21 percent on the year, respectively. Macy’s, Wal-Mart and Target have all raised their dividends this year, but J.C. Penney had to scrap its dividend last month.

Shoppers have struggled with J.C. Penney’s new pricing strategy, which includes a no-coupon “fair and square” everyday model. American consumers are addicted to coupons and it will take some time before they figure out whether or not Penney’s new pricing strategy is worth their dollars. “Coupons were a drug,” explained Johnson. “They really drove traffic.” In order to help consumers understand the model better, Johnson announced last week that J.C. Penney will bring back the term “sale” in its advertising. He said, “We’re moving away from the word ‘month-long value’ because no one really understood that, to calling it what we intended to do, a sale.”

On the positive, shares of J.C. Penney have support at $20 dating back to 2010. Furthermore, some firms still believe in a long-term turnaround. Bill Ackman’s Pershing Square’s latest quarterly letter said, “When we first announced our stake in JCP, the stock price increased to the low $30s per share. Shortly after announcing our stake, we were approached by one of the most well-respected private equity funds in the world who expressed an interest in acquiring the company at a substantial premium. while we welcomed this fund as an owner of the stock, we had no interest in selling the company for a quick premium because we believe in the long-term value creation opportunity.”

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