UPDATE 4-J.C. Penney ousts CEO, Mike Ullman returns

Mon Apr 8, 2013 7:47pm EDT

* Johnson replaced discounts with low prices, sales plunged

* Shares jump on Johnson's ouster, then ease on Ullman news

* Analyst speculates move could presage a sale

By Phil Wahba

April 8 (Reuters) - Attention J.C. Penney shoppers: Meet the new boss. Same as the old boss.

The struggling department store chain parted ways with Chief Executive Ron Johnson, who failed to win over shoppers and investors with his everyday-low-price strategy, and rehired former CEO Mike Ullman to revive the company.

Shares in J.C. Penney rose nearly 11 percent in afterhours trade after a CNBC report that Johnson was out, but then fell 7 percent after the company disclosed full details of the move, including Ullman's return.

William Frohnhoefer, an analyst at BTIG, said that while "certain investors had beaten the drum saying that a change was needed and Johnson wasn't the guy," he believed Ullman would not please the company's critics.

"Investors are concerned about Ullman," Frohnhoefer said, adding that Penney's sales notched "a decline, on a relative basis to other retailers, while he was at the helm."

Johnson, former chief of Apple's retail unit, tried to turn around Penney by revamping the department stores and replacing its traditional coupons and sales events with everyday low prices. But sales plunged 25 percent last year, and the company must now try to woo back shoppers it lost.

Johnson's ouster had been rumored for months, but Ullman's return came as something of a shock, considering how he had been publicly condemned by Penney's largest shareholder, hedge fund manager Bill Ackman.

In a May 2012 presentation, Ackman's Pershing Square called Penney "chronically mismanaged" and noted the stock's declines during Ullman's tenure. Its shares fell about 15 percent while he was CEO from 2005 to 2011. Still, when Ullman left, the share price was double the current price.

Penney Chairman Thomas Engibous said in a statement that Ullman was "well-positioned to quickly analyze the situation ... and take steps to improve the company's performance."

At least one retail expert said Ullman's return might presage a sale of the retailer.

"Ullman ... he didn't really go out on the wings of glory, and now they bring the guy back? I honestly think no one else wanted the job," said Brian McGough, managing director and head of the retail group at Hedgeye Risk Management.

"The only reason why I would name Ullman as the CEO would actually be as a temporary fix just because he does know so many people inside the company, and they have faith in them, and he could calm waters and he could help to put lipstick on the pig and get it sold," said McGough.

'DISASTER'

Johnson was initially seen as such a positive change from Ullman that shares rose nearly 18 percent the day his hiring was announced in June 2011. But sales plunged 25 percent during the first year of his plan to reinvent the department store chain.

Shares of J.C. Penney, which had closed up 2.7 percent in regular trading, fell 4.7 percent o $15.12 in extended trade.

Last week Ackman - who handpicked Johnson to lead the company - said the CEO had made "big mistakes" and that the impact of those mistakes had been "very close to a disaster" for the retailer.

The company has now brought back its old pricing strategy to try to bring shoppers back. Executives have acknowledged their first challenge is to get the chain's old customers back into stores.

Ullman's base salary of $1 million is less than the $1.5 million a year that Johnson received. The company said it has not signed an employment agreement with him.

Last week, Penney said Johnson did not get a stock award or bonus after the retailer's weak 2012 results. The company also said at the time that Johnson would get an exit package of less than $150,000 if he quit or was fired.

"The positive thing is that (Ullman) knows the company and the organization - so not someone trying to learn it from scratch - but he is also the one who left Penney in this situation, who brought it to the point they felt they needed a radically new approach," said Kathy Gersch, co-founder of strategic advisers Kotter International.

"The risk is that they over-correct and throw out everything Ron did."

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