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Ron Johnson - Fired from JCP
Posted by: The Science of Hitting (IP Logged)
Date: April 8, 2013 05:32PM

After the close, some big news hit the wire from J.C. Penney (JCP) – from the press release:

The Board of Directors of J.C. Penney Company, Inc. today announced that Myron E. (Mike) Ullman, III has rejoined the Company as Chief Executive Officer, effective immediately. He has also been elected to the Board of Directors. Mr. Ullman is a highly accomplished retail industry executive, who served as CEO of jcpenney until late 2011. He succeeds Ron Johnson, who is stepping down and leaving the Company.

Thomas Engibous, Chairman of the Company’s Board of Directors, said, “We are fortunate to have someone with Mike’s proven experience and leadership abilities to take the reins at the Company at this important time. He is well-positioned to quickly analyze the situation jcpenney faces and take steps to improve the Company’s performance.”

Mr. Ullman added, “While jcpenney has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged. To that end, my plan is to immediately engage with the Company’s customers, team members, vendors, and shareholders, to understand their needs, views, and insights. With that knowledge, I will work with the leadership team and the Board to develop and clearly articulate a game plan to establish a foundation for future success.”

Mr. Engibous added, “On behalf of the Board of Directors, we would like to thank Ron Johnson for his contributions while at jcpenney and wish him the best in his future endeavors.”


This is a huge blow, and far from good news. Clearly, the board decided that “Home” would not be do or die for Johnson as I recently assumed – the pricing disaster was enough to end his short tenure as the CEO of JCP (assuming early shops data is in-line with previous reports). This leaves plenty of questions to be answered – none of which are adequately addressed in the press release. The company’s plan from this point on is anybody’s guess; strategically, I have no idea what lies ahead for JCP.

As noted in the proxy from a few days ago, Mr. Johnson never entered into an Executive Termination Pay Agreement at JCP; he will walk away from the company with less than $150,000 – the majority of which is simply part of a non-qualified defined contribution plan.

I really have to question the thinking by the board; if this is the conclusion, why wasn’t it made PRIOR to investing in initial construction for the most significant piece of Mr. Johnson’s vision? I’m truly flabbergasted by the timing. I’ll have more to say once we get some additional color on what management plans to do from this point forward; I continue to hold my position in JCP.


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Ron Johnson - Fired from JCP
Posted by: swnyc2 (IP Logged)
Date: April 8, 2013 06:52PM

Science,

I, too, am disappointed at the timing of this decision. It makes me wonder whether the board has additional, material information about how the new shops are doing, which they haven't disclosed. Or, if they have material information about the lawsuit, which they haven't shared.

The problem for me is that Johnson and his vision of reinventing the retail experience was a big reason I bought the stock in the first place. Now that he is gone, I no longer have a reason to own the stock. Apparently, others feel the same way as the stock has tanked in after hours trading.

It's a tough call as to what one should do now. My main reason for purchasing the stock (namely Johnson's retail vision) is gone. So for me, I should probably sell, since I don't believe Ullman is going to come up with a successful turn around plan. The only reason for me not to sell now is if the real estate value really puts a solid floor under the current stock price. In which case it might make sense to wait a bit until sales stabilize.

Do you have a quantitative opinion as to JCPs real estate value?

Regards,


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Ron Johnson - Fired from JCP
Posted by: aagold (IP Logged)
Date: April 8, 2013 07:42PM

It could be that the first two months of Q1 2013 were showing continued deterioration from Q4 2012 and the Board just couldn't take any more pain. I was guessing that Johnson had a couple of more quarters to show that his shop strategy could turn things around; the fact that the board moved this quickly suggests that things were getting even worse in Q1.

I can't believe Ackman agreed to have Ullman come back as CEO. That just seems like adding insult to injury (i.e., after having to fire his hand-picked CEO so quickly). Man... what an unmitigated disaster for Ackman. Why on earth would anybody believe that Ullman would be able to fix things at this point?

- aagold


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Ron Johnson - Fired from JCP
Posted by: The Science of Hitting (IP Logged)
Date: April 8, 2013 08:27PM

Swnyc2,

In terms of real estate value, I don't have much to add beyond what I've wrote in the past ("Property" section from most recent article on JCP); time will tell what the company does with the asset base...

Aagold,

It very well could be, and there's no assurance that the shops strategy is abandoned at this point; my point is that if you have any inclination of letting him go before the "Home" launch is complete, then maybe you should think about how much time/money you're going to put into that launch.

I'll wait to hear what Ullman proposes before I conclude on his ability to right the ship at JCP.

Thanks for the comments!



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Ron Johnson - Fired from JCP
Posted by: luishernadez (IP Logged)
Date: April 8, 2013 09:03PM

I think the real estate value definitely holds at current prices. I think it is worth a lot more than the current mkt cap of JCP.

I hope that with the decision to fire Ron Johnson (which I don't think makes any sense) they decide to spin the real estate into a REIT or something of the sort and start liquidating or drastically reducing the retail operation.

Luis


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Ron Johnson - Fired from JCP
Posted by: varunfriend (IP Logged)
Date: April 8, 2013 09:16PM


Lesson to learn:

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

I wouldnt be surprised if JCP falls from here. A better way to try to acquire the stock is sell puts at value of the real estate per share. I havent been able to get to that number, so i'll probably stay away until I can get a believable estimate for that.



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Ron Johnson - Fired from JCP
Posted by: waup7707 (IP Logged)
Date: April 8, 2013 10:02PM

Well, "Turnarounds" seldom turn. Even Buffett couldn't turn around Berkshire textile business and he admitted that acquiring Berkshire is the most costly mistake in his investment career.


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Ron Johnson - Fired from JCP
Posted by: mla (IP Logged)
Date: April 8, 2013 11:31PM

Yes, I'm planning to sell as well.
And I too wonder what the board was thinking. Firing Ron is a big blow, but then re-instating Ullman?

If they really believed Ullman could stabilize things, I think they should have introduced him as a temporary co-CEO. He would manage the existing stores and get revenues stabilized while working with Ron to build out the new concept

Oh well.


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Ron Johnson - Fired from JCP
Posted by: w1omega (IP Logged)
Date: April 8, 2013 11:56PM

Buffett actually owned a department store, which only gave him headaches for years. WSJ reported some Private Equity/Hedge Funds were interested in buyout, but that's pure speculation at this point. I wonder if the board is doing what they think is best for JCP or to protect their own bottoms. As we have seen with BAC and others, boards have been sued.

This way, the board could at least say, hey we tried to fix it.


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Ron Johnson - Fired from JCP
Posted by: vgm (IP Logged)
Date: April 9, 2013 02:47AM

It surprises me not in the least. As I've said before, much of what our Guru Mr Ackman touches turns to dust. King Midas in reverse.


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