, founder of Hayman Advisors, purchased a 5.2% stake in retailer
J.C. Penney, according to a filing with the SEC dated Sept. 3
reported by GuruFocus Real Time Picks. Bass bought 11,428,450
shares in total on Aug. 30. At a closing cost of $12.48 that day,
the total transaction amount was almost $143 million.
The buy came several days after
of hedge fund Pershing Square announced he would sell his entire
18% stake in the company, taking a 50% loss on his investment first
disclosed in October 2010. Relations between Ackman and the company
had soured in August, as the board resisted his demand for a new
board chairman. The company also disapproved of his decision to
release the lengthy letter calling for a board chairman replacement
and accelerated CEO search to the press.
Ackman stepped down from the board on Aug. 13. He was succeeded by
Ronald W. Tysoe, "a highly respected retail industry executive who
spent 16 years as vice chairman at Federated Department Stores Inc.
(now Macy's Inc.)," the company said in a statement.
J.C. Penney released another dismal quarterly report on Aug. 20,
including a drop in net sales to $2.66 billion, compared to $3.02
in the second quarter of 2012. The 11% drop resulted from "failed
prior merchandising and promotional strategies, which resulted in
unusually high markdowns and clearance levels," the company said.
"The lengthy renovation and disappointing re-merchandising of its
Home departments" added to the strain on sales.
On a sequential basis, comparable store sales improved by 470 basis
points. Sales also increased each month of the second quarter, a
trend the company expects to continue through the second half of
Online sales from the company's website, jcp.com, declined 2.2%
year over year, but improved significantly from the first quarter,
and each month within the quarter. July sales increased 14% over
the previous year.
The company's profit margin, which had been in decline for four
consecutive quarters, also began to stabilize at 29.6% of sales,
compared to 23.8% in the previous quarter, but down from 33.2% in
the second quarter of last year. Gross margins were impacted by
lower sales, high levels of clearance merchandise and leftover
merchandise from the first part of the year.
J.C. Penney's three-year gross margin history:
Revenue and earnings at J.C. Penney declined over the past several
years even as broader U.S. real retail and food services sales
continued to improve, as the following graphs show:
Mike Ullman III, who returned as chief executive officer of J.C.
Penny four months prior to the results announcement, addressed the
company's lagging performance in a statement:
"... We have moved quickly to stabilize our business - both
financially and operationally - and we have made meaningful
progress in important areas of the business. There are no quick
fixes to correct the errors of the past. That said, we have
identified the challenges, put solid plans in place to address them
and have experienced and capable people in key roles to do so."
The company's fledgling sequential improvements and the return of
former CEO Mike Ullman may have prompted Kyle Bass and a host of
other fund managers to initiate long positions.
Bass is joined by Richard Perry of Perry Capital, Larry Robbins of
Glenview Capital, George Soros of Soros Fund Management and Chuck
Royce of Royce & Associates (typically a small-cap manager),
who all initiated a position in J.C. Penney in recent months.
Mario Gabelli of GAMCO Investors and Steven Cohen of SAC Capital
Advisors also increased their holdings of J.C. Penney during the
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