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By Svea Herbst-Bayliss and Jonathan Stempel
NEW YORK, Nov 18 (Reuters) - J.C. Penney Co has a fan in hedge fund manager Marc Lasry, who says the struggling retailer is likely to survive after an ambitious reinvention failed, its stock price tumbled and its biggest investor exited.
“In J.C. Penney, we believe there is a 75 percent chance of it working out,” Lasry, who runs the $12 billion Avenue Capital Group with his sister, Sonia Gardner, said at the Reuters Global Investment Summit in New York.
Avenue bought J.C. Penney debt at between 60 cents to 65 cents on the dollar and expects its investments to pay off within a relatively short amount of time, Lasry said.
He is making his case even after the retailer’s stock price tumbled 48 percent in the quarter that ended Sept. 30.
During that period, the company’s biggest investor, Pershing Square Capital Management’s William Ackman, sold his 39 million shares, and J.C. Penney said it would raise money not long after Chief Executive Myron “Mike” Ullman said it had no immediate need to do so.
Ullman has been trying to revive J.C. Penney after an ill-fated attempt to move the 111-year-old department store chain up-market by his predecessor, former Apple Inc executive Ron Johnson. After only 17 months on the job, Johnson was ousted.
J.C. Penney’s sales plunged and its cash stake declined as Johnson ended coupons, and shifted the retailer’s focus toward trendier merchandise and away from popular in-house brands such as St. John’s Bay, which Ullman is re-emphasizing.
The Plano, Texas-based company ended its fiscal second quarter with $1.54 billion of cash. Results for its fiscal third quarter, ended in October, are scheduled for release on Wednesday.
J.C. Penney on Nov, 7 reported its first monthly same-store sales gain in nearly two years, albeit from depressed levels, after the retailer resumed deep discounting and the stocking of merchandise that longtime shoppers liked..
Lasry said J.C. Penney has survived in part because, prior to its recent troubles, it had been conservatively positioned, having borrowed little money. He said that should stand it in good stead as top management tries to lure shoppers back.
“J.C. Penney was viewed as Middle America, that was their model,” Lasry said. “That worked for decades.”
Lasry said he remains optimistic about turnaround, saying the company’s balance sheet is strong enough to give management five years to turn things around, though only a year or two will prove necessary.
“The whole play on J.C. Penney is, when does the cash burn stop ... Our view is it’s sort of a six-month or one-year process, but you have the luxury of time because of that cash,” Lasry said.
Other investors are holding out for a recovery of the company’s stock.
Billionaire investor George Soros owned 19.9 million shares at the end of September, keeping his stake steady, while hedge funds Highfields Capital, Farallon Capital Management and Jana Partners took small stakes in the company.
Follow Reuters Summits on Twitter @Reuters_Summits (Reporting by Svea Herbst and Jon Stempel; Editing by Steve Orlofsky)