June 19, 2012 / 2:36 PM / 5 years ago

JC Penney stock sinks a day after president exits

The sign outside the J.C. Penney store is seen in Westminster, Colorado May 16, 2011.Rick Wilking

(Reuters) - J.C. Penney Co Inc's (JCP.N) shares tumbled on Tuesday, the day after the department store chain's president abruptly left in the wake of a highly touted advertising campaign that flopped.

Penney shares closed down 8.5 percent as analysts questioned whether the 110-year old company could succeed at its efforts to overhaul pricing, product offerings and store format. On Monday, Penney said President Michael Francis, a member of the "dream team" it started assembling last year to carry out the overhaul, was leaving after just eight months.

In February, J.C. Penney introduced a new pricing scheme that largely did away with coupons and hundreds of sales events shoppers had come to expect, in favor of everyday prices. It launched an advertising campaign featuring comedian Ellen DeGeneres to coincide with the new approach.

The ads were hailed as hip, but critics faulted them for failing to explain the new pricing approach clearly enough. The company last month acknowledged that the ads had resulted in the loss of some longtime Penney shoppers who had looked for markdowns.

"It is easy to lose core customers and much harder to win new ones. So, even if JCP were to be successful, success might not occur as fast as management had anticipated," Gilford Securities analyst Bernard Sosnick said in a research note.

Chief Executive Ron Johnson told industry newspaper Women's Wear Daily on Tuesday that Francis left because of the poor advertising campaign.

"The marketing I largely left to him. The fact that it hasn't resonated, meant I had to get involved," WWD quoted Johnson as saying.

Penney, which had not given a reason on Monday for Francis' departure, did not immediately return a request for comment.

On May 15, Penney reported a worse-than-expected 18.9 percent drop in same-store sales, suspended its dividend and reported an unexpected loss.

Barclay Capital analyst Robert Drbul said in a note that Penney is so far this quarter not showing "significant" improvement over the dismal first quarter.

Nomura on Tuesday lowered its target to $26 from $30, while Goldman Sachs cut its target for Penney to $27 from $31.

In addition to marketing, Francis, who came over from Target Corp (TGT.N) in October, was also responsible for merchandise and his departure could be problematic in lining up products likely to draw shoppers.

The next prong of the transformation will start in August when Penney starts carving out each store into 100 boutiques each hosting a brand like Jonathan Adler or Tourneau watches.

BMO Capital Markets Wayne Hood said Francis' departure creates a "leadership void in the marketing and merchandising organization" that "could only add to the uncertainty involved with possible vendor negotiations."

Gilford Securities' Sosnick expressed concerns that weak profits in the current and next quarters could impede Penney's financial ability to redo its stores.

Penney's shares finished the day down 8.5 percent at $22.25 They fell as low as $21.57 - their lowest since September 2010.

Reporting by Phil Wahba in New York. Additional reporting by Mihir Dalal in Bangalore; Editing by Viraj Nair, Maju Samuel and David Gregorio

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