Investors' J.C. Penney discount is familiar spiral

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By Lauren Silva Laughlin

(The author is a Reuters Breakingviews columnist.)

DALLAS, Jan 2 (Reuters Breakingviews) - It's a familiar story: a deep-pocketed investor takes a stake in a retailer, hoping to spark a turnaround or help transition to e-commerce. But the company's performance inexorably worsens. Some, like Toys R Us and Sears, file for bankruptcy. Others may look like a bargain, but that's rarely the case.

Activist Bill Ackman took a stake in 2010 and brought in former Apple retailing boss Ron Johnson to lead an upscale turnaround effort, but that flopped and he exited with a big loss. The company has cycled through several other CEOs in the past decade, including a double stint for Mike Ullman. In October it brought on Jill Soltau, who turned around crafting vendor Jo-Ann Stores. With revenue expected to fall almost 6 percent this quarter, according to Refinitiv estimates, she has her work cut out for her.

Lenders can give retailers rope, sometimes for years. That's often the case with private-equity backers, who have the money to see firms through hard times and can extract fees and dividends along the way. But such forbearance rarely avoids a restructuring, or worse. KKR and Bain Capital kept Toys R Us going for years as EBITDA declined before pulling the plug. It's being liquidated. That's a possibility for Sears as well, notwithstanding last week's $4.4 billion takeover offer from ESL founder Eddie Lampert.

The decline of such icons has scared investors away from other retailers. Nordstrom and Barnes & Noble would like a private-equity partner, but haven't yet found one. Companies like J.C. Penney may appear cheap after a 70 percent stock-price decline in the past year. But retailers' woes could easily worsen. Although U.S. retail sales have been strong for the last several years, many companies couldn't hack shifting consumer tastes and online competition. Even penny stocks can be expensive if it's a prelude to Chapter 11.

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- Shares in department-store chain J.C. Penney fell 8 percent on Dec. 27 to close at 97 cents per share. The stock was up a penny at $1.05 at 10:35 a.m. EST on Jan. 2. In October, the 116-year-old company named Jill Soltau as chief executive, its fourth in six years.

- On Dec. 28, Eddie Lampert, Sears's largest equity owner and debtholder, made a proposal to buy Sears for $4.4 billion.

- Retailer Toys R Us on Sept. 18 filed for Chapter 11 bankruptcy protection in the United States. In November, its private-equity investors, KKR and Bain Capital, said they were establishing a fund to distribute $20 million to the retailer's employees.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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