Take a flier with J.C. Pen­ney

The Herald Sun - - Business - BY MALCOLM BERKO Creators Syn­di­cate Please ad­dress your fi­nan­cial ques­tions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]­hoo.com.

Dear Mr. Berko: In 2007, my stock­bro­ker had me buy 100 shares of J.C. Pen­ney at $ 73. Months later, he had me buy an­other 100 shares at $62. And be­cause he was very cer­tain it would re­cover, he had me buy 100 more shares when it had fallen to $47. Fi­nally, in 2009, I bought my last 100 shares at $28, giv­ing me an av­er­age cost of $52.50 per share. I still own the stock and want to know whether I should sell my 400 shares or buy the stock again at $1.36 a share. – HD, Blooms­burg, Pa.

Dear HD: Wow! I think your bro­ker must have slipped into the gene pool when the life­guards weren’t watch­ing. I’m also won­der­ing whether you joined him!

James Cash Pen­ney was from Mis­souri, the same state that gave us Harry S. Tru­man. They could have met, played check­ers to­gether and even talked se­ri­ous pol­i­tics. How­ever, af­ter grad­u­at­ing from high school, Pen­ney moved to Colorado on doc­tor’s or­ders, hop­ing a bet­ter cli­mate would im­prove his rheuma­tism. And in 1898, Pen­ney went to work for Thomas Cal­la­han and Guy John­son, who owned the Golden Rule dry goods stores in Colorado and Wy­oming. In 1902, Pen­ney opened his first store in Kem­merer, Wy­oming, and by 1907, he owned four lo­ca­tions. In 1912, with good past suc­cesses, Pen­ney had opened 34 stores in the Moun­tain States un­der the J.C. Pen­ney name. By 1928, Pen­ney had over 1,000 stores, gen­er­at­ing $190 mil­lion in rev­enues – equiv­a­lent to nearly $3 bil­lion in to­day’s dol­lars.

Won­der of won­ders, in 1940, a lad called Sam “Sam Boy” Wal­ton took a trainee job at a J.C. Pen­ney store in Iowa. He got a lot of good train­ing; how­ever, 18 months later, Wal­ton was drafted into the Army. In any event, by 1973, there were 2,050 J.C. Pen­ney stores sell­ing thou­sands of prod­ucts and pump­ing prof­its. But that’s when the trou­bles be­gan, as the com­pany re­al­ized it was com­pet­ing with WalMart and Sears, which were sell­ing mer­chan­dise at dis­count prices. Then came the 1990s, with big-box stores such as Costco and Tar­get, Cir­cuit City and Best Buy. J.C. Pen­ney’s management fum­bled. Then came Ama­zon.com, and its management stum­bled. Along came sim­i­lar e-com­merce plat­forms, and its management bum­bled. And as rev­enues dropped 40 per­cent in the past 12 years, J.C. Pen­ney’s store count im­ploded, fall­ing from 2,050 to 850.

So, like Claire’s, Toys R Us, The Lim­ited, H.H. Gregg, Sports Au­thor­ity, Aero­postale, Ra­dio Shack, A&P and Sears, each of which is bank­rupt, J.C. Pen­ney (JCP-$1.36) lacks the mojo to keep its doors open for an­other few years. Dur­ing the past 10 years, JCP has tried ap­peal­ing to a younger con­sumer, but rev­enues have de­clined steadily, from $20 bil­lion in 2008 to $12.5 bil­lion last year. In any event, JCP still has the rep­u­ta­tion of be­ing your grand­mother’s store. So, with cu­mu­la­tive losses of nearly $4 bil­lion and lit­tle in the way of en­cour­ag­ing news re­gard­ing prof­its, JCP may close more than 100 stores by 2020. Management has rea­soned that with fewer stores and lower sales, the com­pany won’t lose as much money in fu­ture years. That’s log­i­cal!

But now, new lead­er­ship has come, in the form of CEO Jill Soltau. Her past is rid­dled with 30 years of ex­cel­lent re­tail ex­pe­ri­ence, im­pres­sive prod­uct de­vel­op­ment and an im­por­tant e-com­merce skill set. The board be­lieves that Jill’s skills will be able to turn JCP around, helped by a siz­able credit line that will give Jill the liq­uid­ity she’ll need. How­ever, I would hope she’d sell some of JCP’s nu­mer­ous non-core as­sets be­fore in­creas­ing debt.

With­out some­one of Soltau’s ex­pe­ri­ence, the pos­si­bil­ity of a JCP come­back would make a sick cat laugh. How­ever, I like this very classy lady’s re­tail back­ground, and I like her record of suc­cess. And most of all, I was im­pressed that the peo­ple at her pre­vi­ous em­ployer (Jo-Ann Stores) spoke so highly of her.

Here’s my sug­ges­tion: Take a hu­mon­gous spec­u­la­tion and buy 1,000 shares of JCP at $1.36. Wait 31 days, and then sell your 400 shares with a $52.50 ba­sis. There’s a 38.7 per­cent de­gree of prob­a­bil­ity that Jill will turn JCP around and the shares will rise to $6 by Septem­ber.

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