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J.C. Penney Down 6 Percent Following More Disappointing Data

Ron Johnson may be gone but his effects still linger at J.C. Penney (NYSE: JCP) where earnings were, once again, a huge disappointment. Sales dropped 16.4 percent year over and what’s worse, the 2012 figure was down 20 percent from the year before. In the first quarter of 2013, the company reported a net loss of $348 million or $1.58 per share equating to a $1.3 billion loss since Ron Johnson took over.

You would think that current CEO Mike Ullman, who was asked to return following the ousting of Ron Johnson, would get a free pass as he tries to mitigate the effects of the past CEO. That’s likely not true. The company burned through $970 million in cash as it worked to complete Johnson’s store within a store concept. Former retail analyst Walter Loeb wrote in a Forbes column that he believed that the company was close to declaring bankruptcy before a $1.75 billion senior loan facility was drawn down. Ullman will have to make big changes rapidly if he hopes to stay employed.

Clearly, J.C. Penney is trying to return to its roots although those roots are what prompted it to look for a new CEO. It’s ads, once again, include coupons and it has gone as far as to run commercials apologizing for recent missteps and inviting customers back.

Interesting, Loeb, in his column said,

I expect sales to improve dramatically in Q4 and the company to show a profit by year-end. After all, under Johnson one billion dollars was taken out of the corporate overhead. Some of those cost cuts are going to stick and will help rebuild cash flow once sales turn around.”

If he’s correct, J.C. Penney could represent a solid value play at these levels, but that’s a big if. Investors would have to believe that going back to it’s traditional under performing roots will result in profits. To be fair, it could be argued that going from this level to where it once was when it was considered unattractive is still quite an impressive move.

Disclosure: At the time of this writing, Tim Parker had no position in J.C. Penney

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