* Johnson replaced discounts with low prices, sales plunged
* Shares jump on Johnson's ouster, then fall 6 pct on Ullman
* Analyst speculates move could presage a sale
By Phil Wahba
April 8 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 on Monday
rehired Johnson's predecessor, former CEO Myron Ullman, to
revive the company.
Johnson's botched transformation led to a 25 percent decline
in sales last year, with the bleeding worsening each quarter.
Shares in J.C. Penney rose nearly 11 percent in afterhours trade
after a CNBC report that Johnson was out, but then fell 6.2
percent to $14.88 after Penney disclosed Ullman's return.
"Certain investors had beaten the drum saying that a change
was needed and Johnson wasn't the guy," said William
Frohnhoefer, an analyst at BTIG, who added investors have
concerns about Ullman. "All the criticism they had leveled at
the company before is going to be resuscitated now."
Johnson, previously a well-regarded retailer who pioneered
the "cheap chic" concept at Target Corp in the 1990's
before building Apple Inc's retail chain, had promised
at the start of his stint to remake Penney into "America's
favorite department store."
He tried to breathe new life into the 111-year-old chain by
replacing its traditional coupons and sales events with everyday
low prices. He also carved the retailer's larger locations into
collections of branded boutiques for the likes of Joe Fresh,
Jonathan Adler and Martha Stewart. Johnson had plans for 100
such shops at Penney's 700 locations.
While the shop-in-shops have shown promising results,
Penney's price sensitive, deals-obsessed shoppers balked at
Johnson's pricing strategy, which he did not bother to test.
Ullman told Reuters in an interview that his first step as
returning CEO would be to take a close look at Penney's books
before making any decisions about whether he would forge ahead
with Johnson's shop plan or stop it.
"What's worked well so far is having some attractions within
each area," Ullman said.
At the end of fiscal 2012, Penney had $930 million in cash,
some $577 million less in cash than a year earlier, despite
selling off a number of assets and cutting nearly $1 billion in
expenses. Still, he noted, there was something to be said for
making the stores more interesting.
Johnson's ouster had been the object of intense speculation
for weeks, but Ullman's return was a surprise, considering how
harshly his tenure had been condemned by Penney's largest
shareholder, hedge fund manager Bill Ackman, who handpicked
Johnson and backed his vision.
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 Monday's price.
Ullman said Ackman's criticism was not "entirely balanced"
given how hard the 2007-2009 recession hit Penney's customers.
Ackman could not be reached for comment on the latest
changes at Penney. But the hedge fund manager did acknowledge
last week that the CEO had made "big mistakes," and that the
impact of those mistakes had been "very close to a disaster" for
At least one retail expert said Ullman's return might
presage a sale of the retailer.
"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," said
Brian McGough, managing director and head of the retail group at
Hedgeye Risk Management. "He could calm waters and he could help
to put lipstick on the pig and get it sold."
The latest change in the corner office is expected to cast a
harsh light on the board ahead of Penney's annual meeting on May
17, in Plano, Texas, one corporate governance expert said.
"When you get a board that keeps making errors like that,
then you start to lose faith not just in the CEO but in the
board as well," said Paul Hodgson, an independent corporate
governance analyst in Camden, Maine.
Analysts expect shares to be under pressure while Ullman
tries to stem the bleeding, especially if that means changing
gears abruptly again.
"This is like (Tesla co-founder) Elon Musk announcing that
Tesla (maker of the first electric car) is changing gears and
will now focus on gas-powered vehicles," said David Tawil, whose
hedge fund Maglan Capital had bet Penney's stock would fall.