So, I saw this run recently about J.C. Penney Company, Inc. (NYSE:JCP) and was going to ignore it but it seems to keep popping up out there like it is “news” so I’ll address it.
Here is the headline:
J.C. Penney Warns Its New Pricing Plan May Not Work
Dear Friends of the Fund, Please find enclosed our Q2 2022 investor letter for your review. Qualivian reached its four-year mark in December of 2021. We are actively weighing investment proposals. Please refer to our Q2 2022 investor letter for our performance and commentary on the second quarter of 2022. A fact sheet is
Oooooh….Sounds ominous right?
Here is the rest of the article:
J.C. Penney (JCP) warned Wednesday that its new pricing strategy might hurt sales in the short run and there was no guarantee it would work to save the struggling retailer.
The department-store chain in January scrapped its strategy of hiking up prices in general while offering some sales and coupon deals. Instead it will offer everyday low prices with two sales a month on out-of-season styles.
The company was hopeful of its new pricing plan and hired comedian and talk show host Ellen DeGeneres to spearhead a new ad campaign to alert longtime customers of the changes.
J.C. Penney CEO Ron Johnson is a former Apple (AAPL) executive known for creating the “Genius Bar” customer-help service at Apple stores.
Since taking over the retailer last year, he has hired several other former Apple employees: Michael Kramer as chief operating officer, Daniel Walker as chief talent officer and Kristen Blum as chief technology officer. Laurie Beja Miller will serve as executive vice president of The Square, a new store layout that will provide attractions and services for shoppers.
But J.C. Penney is concerned that the new plan could confuse its longtime customers.
The new pricing strategy “could result in a prolonged decline in sales,” J.C. Penney said in its annual report. The company said there was “no assurance” the plan “would yield better results.”
Meanwhile, the world’s largest retailer, Wal-Mart (WMT), said positive sales trends from the second half of last year are continuing in recent weeks with its strategy to regain customers by bringing back nearly 10,000 items to its stores and advertising its price-matching program.
“I’m happy to tell you that the strong momentum we closed the year (with) continues in our new fiscal year, throughout February and our current month of March,” said Wal-Mart’s U.S. chief merchandising officer, Duncan Mac Naughton, during a CIBC conference in Toronto, according to a Reuters article.
Here is the thing. Those 13 words quoted are part of a much larger section in an annual report called “Risk Factors” (Item 1A) that starts on page 5. This is the section management tells you everything possible that could go wrong so that should anything go wrong, and I mean anything, you can’t sue them for not telling them something could go wrong.
The problem I have is that this is written like it is some kind of admission of impending failure or that JCP was disclosing something to investors as a warning things were not going well. Since it was in IBD, it was then picked up and run with by various other sites. The fact is, it is nothing of the sort.
Here is the full section (emphasis mine):
In 2011, we recruited a new executive team and announced plans to transform our business, including changes in our pricing strategy, marketing cadence, store layout and merchandise assortments. The success of our transformation is subject to both the risks affecting our business generally and the inherent difficulties associated with implementing our new strategies and is largely dependent on the skills, experience, and efforts of our management and other associates. The loss of the services of one or more key operations executives or of numerous associates with essential skills could have an adverse impact on our business. Our transformational plan involves the re-imagining of some of our business practices and may result in a restructuring of our traditional vendor arrangements, including the sharing of certain costs and expenses. There is no assurance that we will be able to successfully implement these strategic initiatives, which may result in an adverse impact on our business and financial results. In addition, the changes to our pricing strategies announced in January 2012 could result in a prolonged decline in sales. There can be no assurance that our new pricing, marketing and merchandising strategies, or any future modifications of our strategies, will be successful or result in improved operating resultsor productivity
Now, I know my last line is different than the one IBD quoted but that it because what they quoted clearly isn’t there (they should have said “we paraphrase”?).
Let’s look at it closer. JCP is transforming their business and what they are simply saying is that there is “no assurance” it will work. Right? Because if the “assured” us it would work and it didn’t, here come the lawsuits. Now, common sense tells us that they obviously think it will work. I mean, why else do it then? Unless the team that was the reason for Target’s (TGT) retail ascension and Apple (AAPL) becoming the most successful retailer today has suddenly decided “what we need now is a humiliating flop”. Going out on a limb and assuming that is not their goal, I’d say they are confident their plan will work.
Just for the record, here are some other bombshells dropped in the 10K under “Risk Factors” that would negatively affect the business
These are all direct quotes (here is the 10K so you can check):
- Our Company’s growth and profitability depend on the level of consumer confidence and spending
- Additional events that could impact our performance include pandemics, terrorist threats and activities, worldwide military and domestic disturbances and conflicts, political instability and civil unrest
- The retail industry is highly competitive, which could adversely impact our sales and profitability.
- Our sales and operating results depend on customer preferences and fashion trends.
- Our profitability depends on our ability to source merchandise and deliver it to our customers in a timely and cost-effective manner.
- Additionally, the impact of current and future economic conditions on our suppliers cannot be predicted and may cause our suppliers to be unable to access financing or become insolvent and thus become unable to supply us with products
- Similarly, political or financial instability, changes in U.S. and foreign laws and regulations affecting the importation and taxation of goods, including duties, tariffs and quotas, or changes in the enforcement of those laws and regulations, as well as currency exchange rates, transport capacity and costs and other factors relating to foreign trade and the inability to access suitable merchandise on acceptable terms could adversely impact our results of operations.
- Our business is seasonal, which impacts our results of operation
- Our profitability may be impacted by weather conditions.
There are probably a dozen or so more but I hope you get the point by now. Let me put it this way, if you are surprised any one of those events above could have a negative effect on not only JCP but ANY retailer, please stop reading and do not invest in stocks. So yes, JCP is saying their new pricing strategy might not work in the same section they are enlightening us to the fact a World War, Terrorist Attack or a Civil War in the US might not be the best things for sales either…..
Sorts of puts their “warning” in better perspective?
By Todd Sullivan of Value Play