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Ellison leaves Penney, further fueling doubts

Written by George Anderson

Photo: JCPenney

A couple of good or bad quarters do not typically make or break a retailer. Quarterly results, however, are big news on Wall Street, particularly for J.C. Penney, a chain that has been searching to make itself relevant to consumers for years. Doubts about Penney certainly aren’t being helped this morning by the news that chairman and CEO Marvin Ellison is leaving the retailer to take the top job at Lowe’s.

Mr. Ellison, who served as an executive at Home Depot prior to joining Penney, has resigned as the company’s board chair effective immediately. He will join the home improvement chain on July 2.

Last week, J.C. Penney reported same-store sales growth of 0.2 percent in the first quarter, below the full two percent gain analysts were expecting. The retailer, which posted same-store gains of 1.7 percent in the third quarter of last year followed by a 2.6 percent increase in the fourth quarter, saw its stock take a hit after failing to deliver the results investors were seeking.

Mr. Ellison chalked up the miss to the weather. Consumers put off purchases as temperatures across the country remained chilly in early April. Speaking on the retailer’s earnings call, Mr. Ellison said Penney’s comp sales would have been up 1.5 percent for the quarter had the weather only cooperated. He said Penney saw improvements in its clothing sales over the last two weeks of April as temperatures became more seasonable.

Others, however, simply aren't buying Mr. Ellison's rationalization for Penney’s performance. 

An article on CNN Money flashed the headline that the department store “is running out of time.” The piece pointed out that Macy’s, which issued a positive quarterly report last week, didn’t see any weather-related impact on its business during the same timeline.

Penney’s revenues are simply not growing quickly enough to help it pay down its debt. The company, which has $2 billion in liquidity, currently holds $4.1 billion in long-term debt, according to the CNN report.

Mr. Ellison continues to publicly maintain his confidence in Penney’s future. He called “the warrior spirit” within the company “unmatched” while asserting the Penney “has the talent and expertise to achieve sustainable, long-term growth."

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