Photo: JCPenney
Ellison leaves Penney, further fueling doubts
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.”
- JCPenney Announces Resignation of Chairman and CEO Marvin Ellison – J.C. Penney Company, Inc.
- J.C. Penney’s CEO Marvin Ellison on Q1 2018 Results (Earnings Call Transcript) – Seeking Alpha
- JCPenney is running out of time – CNN Money
- JCPenney Reports First Quarter 2018 Financial Results – J.C. Penney Company, Inc.
- JCPenney Fourth Quarter and Fiscal 2017 Earnings Exceeded Expectations – J.C. Penney Company, Inc.
- J.C. Penney is feeling merry about its Christmas performance – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think J.C. Penney is in trouble? Do you read anything into Penney’s prospects from the resignation of Marvin Ellison?
Poll
BrainTrust
Neil Saunders
Managing Director, GlobalData
Lee Peterson
EVP Thought Leadership, Marketing, WD Partners
Let’s be honest, the departure of Marvin Ellison from J.C. Penney could not have come at a worse time for the beleaguered department store!
The turnaround program that Ellison put in place has partly delivered but is still far from complete. There is now a question mark over how this plan will proceed.
Ellison’s exit will also raise speculation that he is not particularly optimistic about the future prospects of J.C. Penney and sees the grass as being greener at Lowe’s. Indeed, exiting before his plan is complete is perhaps a tacit admission that he may not be able to deliver what investors are looking for.
Wait, I thought they were “turning it around”? Guess not. This is another symptom of a long and slow death spiral. It’s not going to be pretty.
Yes, Lee. I call this disappointing. He tried a few things that appeared to work i.e. expanding Sephora, but the plan needed more. What a time to walk, and what does it say to the market? It also makes me question Lowe’s decision. He may have been an asset at Home Depot but leaving J.C. Penney now? Wow is all I can say for my 2 cents.
I won’t comment on J.C. Penney. There are clear challenges for all department stores – but I do hope they sort out success.
What strikes me is this appears, at least on the surface, to be a good sign for Lowe’s. Ellison was involved at Home Depot in the immediate aftermath of the catastrophic Nardelli years. Lowe’s has made a smart step – seeking leadership from that turn around.
J.C. Penney continues to have a sales problem; its comp store sales for 2017 and the first quarter of 2018 lagged its competitors and failed to take advantage of the continuing decline of Sears. Kohl’s experienced similar weather issues in Q1 but managed to deliver a 3.6 percent store-for-store sales increase.
It sounds like 20/20 hindsight, but Mr. Ellison operated in a comfort zone since joining J.C. Penney, based on his long background at Home Depot. (And now he is really moving back into that comfort zone.) The push toward home goods — especially major appliances — appears not to be the answer to J.C. Penney’s lackluster sales.
When J.C. Penney finds a suitable replacement, I expect the company to accelerate its store closure program — unless there is opportunity to be found by heading in the opposite direction and picking up sites from Bon Ton, Sears and so forth. But Mr. Ellison’s strategic retreat (while Kohl’s pushed to maintain its store base as part of an omnichannel strategy) looks like a mistake from here.
J.C. Penney is not far behind Sears in its extinction, as retail continues to dismiss the once powerful stores that dotted the landscape across the country. More regional chains will disappear and that is simply the way things are going, as online, combined with super fast free delivery has blown up the conventional business model. Consolidation with mega monster retailers will be the winners, and any new entries into the marketplace must be high-quality, high-service style stores with an impressive online performance, or they too will perish. Wishing it away won’t help, and small businesses that take care of their customers’ needs will stick around for years to come, as brick-and-mortar will always fill the needs for millions of consumers who demand the personal touch.
If we use share price and direction as a measure of confidence in J.C. Penney, then the company has been in trouble for several years. Today’s announcement by Mr. Ellison suggests the future odds of turning around J.C. Penney is more daunting than expected. On the other hand, the opportunity at Lowe’s may have been too good to ignore. The return of Mr. Ellison to the DIY segment and the opportunity to lead Lowe’s is a natural move given his previous success at The Home Depot and presents an ideal situation to highlight his strengths. That said, it’s difficult to put a positive spin when the captain of the ship departs in mid-battle.
I do not doubt one bit the “warrior spirit” of J.C. Penney’s employees, yet that does not diminish the high hurdle of addressing the market shift in how consumers buy goods and servicing the company’s high debt-to-equity ratio. It’s been at least 20 years since we began to see the earliest signs in the demise of the triumvirate: Sears, Montgomery Ward and J.C. Penney. Much has changed since then and barring a major, and painful, pivot it’s difficult to see how this ends well. The company’s board of directors needs to make a clear-eyed decision on the future, the role J.C. Penney can play, and the path forward. It will be difficult, but not impossible with the proper team and new strategy.
I think Ron Johnson had it (almost) right. He was moving J.C. Penney to distinction. Mr. Ellison added a “me too” business. He did what he knew how to do. Smart in light of Sears’ demise, but it didn’t do anything to create true distinction in the near term. So but for the sheer idiocy of Mr. Johnson’s one to two year time frame and the dropping of coupons, I think he had it right. Now, can we please learn all the right lessons from the last two CEOs and have the next CEO help J.C. Penney contribute to saving the mall?
Mass department store retail is not relevant. Johnson knew it. Too much space, therefore inventory for the demand to be profitable. Millennials delaying life stages and choosing different life styles. Ellison, operator, was miscast or under supported (vision) which was proved by some of categories added to fill space. Yes, JCP is in trouble. Big trouble — it’s too big.
None of the mall anchors are looking good outside of 100 malls and JCP has 10X that. It is years behind efforts in place by its competition: Sears, Macy’s, L&T, BonTon. Whether it be liquidation, severe portfolio adjustment or selling model makeover. And there is no balance sheet help with all the debt taken on by Ullman to fix Johnson’s efforts.
Sorry, retail ain’t for sissies!
This is a tough one … and ultimately, their problems have not changed in a decade … not enough cash, a customer that is aging out, and no clear direction forward. People forget that Ron Johnson was originally brought in to resurrect the brand, on what, I believe was at best a Quixotic quest. Ullman then brought them back from the brink of extinction, but really only got them back to where they were when he left the first time.
I think regardless, the opportunity to bring Lowe’s back up to prominence will likely be more fun for Ellison and more in line with his core competencies.
JCP and Macy’s draw from (largely) the same customer base, so it’s not terribly surprising that strong growth at one — and at 4+% the record for the latter doesn’t even need quote marks around it — is offset by weak results at the other (indeed I’ve always maintained that much of Macy’s supposedly strong performance during the past decade was really more the terrible performance of JCP and, especially, Sears). But collectively, the market still grew, so I too find Mr. Ellison’s “the dog ate my homework” excuse just that.
And with those perhaps to be his parting words, I’m not traumatized by his leaving … going to Lowe’s sounds more like a career change than a panicked exit. I think his tenure was adequate, but not overwhelming (which should be taken not so much as a criticism as recognition of the fact that a CEO there will have limited options … particularly as regards short-term results).
Yes JCP is in trouble, as are most retailers who are failing the “relevance” test. That said, leadership matters more in tough times and I’ll echo Dick’s comments that Ellison was taking a risk-averse strategy and came up short. Hard to blame him for taking the job at Lowe’s though and if JCP is to remain for another XX years, they need to start focusing on the customer and doing something unlike they or others are doing in the market.
Last, and related, blaming the weather in today’s world is a total cop out. Either they don’t know why sales didn’t meet expectations (doubtful) or their forecast was not very diligent.
Yes, JCP is in trouble. Ellison’s sudden departure doesn’t instill confidence, but let’s face facts. Apart from some notable recognition for their mobile app, what customer-centric changes has JCP introduced to make themselves relevant to their customers? Most of what we’ve seen is product related — bringing in appliances, for example, or adding more Sephora stores inside. Some of these changes were attempts to take share away from other brands (appliances), while others were designed to get more traffic through their doors (Sephora). Even so, did those Sephora shoppers turn around and buy something else after making their Sephora purchase? During the holiday season, maybe, but the momentum isn’t holding.
If not for how Ron Johnson executed his dramatic changes at JCP, he had the right fundamental ideas about changing what a department store means to shoppers. Dramatic change is what this segment needs now!
I feel badly because I genuinely like JCPenney. Call me old fashioned but I like their pants and their shirts are great for me for work.
Unfortunately in this new world of online buying, I think there is only room for one true success in middle road. Bon Ton will soon be history. Kohl’s is “Terrific” and can seemingly do no wrong — they will survive. Macy’s will survive because of its size, as it fumbles around with complete lack of identity. JCPenney I am afraid may not be able to overcome the burden of the debt load they carry. I hope I am wrong and they too are able to survive!
Unfortunately I think the true survivor of this segment is only Kohl’s. (And 95% of the malls are irrelevant and have really become awful places.) I am afraid that it may be very sad to watch this play out.
Thanks for the ability to weigh in!