By Svea Herbst-Bayliss and Katya Wachtel
BOSTON, April 5 Hedge fund manager William
Ackman said that Ron Johnson, the chief executive he handpicked
to turn around JC Penney, has made "big mistakes" and
the impact on the struggling retailer has been "very close to a
The "criticism is deserved," Ackman said on Friday of
Johnson, a former Apple executive who has come under
fire for his dramatic plans to overhaul the staid retailer with
cost cuts, more fashionable merchandise and a new pricing
The stock price has plummeted 27.6 percent in the first
quarter as Johnson's plans alienated JC Penney's core clientele
and has not resonated with new shoppers.
"One of the big mistakes was perhaps too much change too
quickly without adequate testing on what the impact would be,"
Ackman said on Friday at an investment conference sponsored by
After months of being a public cheerleader for Johnson,
often saying that he was a doing a great job, the fund manager
tempered his normally upbeat comments on Friday.
Speaking bluntly, Ackman, who sits on the JC Penney board
and whose $12 billion Pershing Square Capital Management is the
company's largest shareholder, said big mistakes have been made
remaking the 110 year-old retail brand.
JC Penney traditionally drew in customers with big sales and
coupons but Johnson has been criticized for eliminating those in
favor of every day low prices.
The company has now brought back their old pricing strategy
to try to bring shoppers back.
Ackman said that Johnson faces one of the toughest
challenges in corporate America in cutting costs and changing
the merchandise and that "the impact has been, on a consolidated
basis, very close to a disaster."
Right now Johnson is "working very aggressively with his
team to fix the mistakes that have been made, and there have
been some big mistakes," Ackman said.
JC Penney did not immediately respond to a request for
JC Penney's stock price climbed 3.3 percent on Friday to
$15.57 in late afternoon trading.
Ackman, a favorite with pension funds and wealthy investors,
has come under criticism for bets on retailers in the past,
including bets on Target and bookseller Borders a few
years ago. Currently Pershing Square is sitting on roughly $500
million in paper losses in JC Penney.
"If you get a retailer fixed and you can replicate it, it's
about the best way to make money," he said.
While JC Penney's losses are making headlines, Ackman's
portfolio gained 6.1 percent during the first quarter thanks to
bets on Canadian Pacific Railway and Procter & Gamble
In a nod to his ongoing commitment to JC Penney's fortunes,
the billionaire investment manager wore socks purchased at JC
At the conference Ackman was also asked about his other high
profile investments, including nutritional supplements company
Herbalife on which Pershing Square has a $1 billion
short bet, expecting the multi-level marketing company's share
price will move to zero.
The investment has been the talk of Wall Street in recent
months as other well-known hedge fund managers, including Carl
Icahn and Daniel Loeb, moved to the other side of the bet with
long positions in Herbalife.
"Taking a short position and going public with it is a
pretty serious business," Ackman said. "Did I think a group of
hedge fund managers would take the other side of the trade and
try to orchestrate a short squeeze? No, I didn't think that,"
Short-sellers borrow shares and sell them, seeking to profit
by returning them after buying them back at a lower price. A
short squeeze occurs when the share price rises instead, forcing
the borrowers to try to buy them back at a higher price, thus
pushing the share price even higher.
Talking about the public feud over Herbalife, Ackman said
that the $2.25 trillion hedge fund industry, once close-knit
where managers often worked collaboratively, now seems much more
"This was the first case where there was a lot of sniping
going on between managers," he said, referring to the recent
backbiting over the Herbalife trade.
But he acknowledged that hedge fund managers can't be overly
sensitive. "You have to have thick skin to be in this business."