{"id":44579,"date":"2013-11-26T00:07:52","date_gmt":"2013-11-26T05:07:52","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=44579"},"modified":"2013-11-26T00:07:52","modified_gmt":"2013-11-26T05:07:52","slug":"jc-penney-on-express-train-to-oblivion","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/11\/26\/jc-penney-on-express-train-to-oblivion\/","title":{"rendered":"JC Penney On Express Train to Oblivion"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a><\/p>\n

I was on CNBC this week to discuss battered retailer JC Penney<\/strong> (<\/span>JCP<\/a>)<\/span>, commenting that the company “is on an express train to oblivion.”<\/p>\n

Activist investor Bill Ackman<\/a> is widely blamed for running the company into the ground, and the criticism is justified. \u00a0Ackman installed former Apple<\/strong> (<\/span>AAPL<\/a>)<\/span> retail guru Ron Johnson as CEO, and in a span of less than two years, he managed to alienate (some might say actually antagonize) Penney’s core customer base and shrink the store’s annual revenues by a quarter.<\/p>\n

But as destructive as Ackman was during his tenure as a major shareholder, he didn’t create Penney’s problems. \u00a0Penney had been losing market share to nimbler retailers like Target<\/strong> (<\/span>TGT<\/a>)<\/span>, Wal-Mart<\/strong> (<\/span>WMT<\/a>)<\/span> and Kohl’s<\/strong> (<\/span>KSS<\/a>)<\/span> for years. \u00a0In a strong retail market, a marginal player like Penney can survive and have some degree of success. \u00a0But the retail market has been soft for years, particularly at Penney’s working and middle-class price points. \u00a0Target, Wal-Mart and Kohl’s have all had disappointing years, and Wal-Mart has repeatedly mentioned the difficult financial conditions of its core working-class customers. \u00a0If Wal-Mart is having a hard time growing, then what possible chance does Penney have of turning it around?<\/p>\n

And this says nothing of the retail elephant in the room, internet retailer Amazon.com<\/strong> (<\/span>AMZN<\/a>)<\/span> and its online peers. \u00a0JC Penney has made decent progress online, as have most major retailers. \u00a0But Amazon’s insistence on growth over profitability has a way of crimping the margins of virtually all its competitors.<\/p>\n

JC Penney was slowly dying before Ackman got his claws into it. \u00a0But at this stage in the game, the company will burn through its cash in less than a year unless sales show meaningful improvement. \u00a0This brings up a good question: If Penney is dying, might it have value as an asset liquidation play?<\/p>\n

Two years ago, I asked tongue in cheek\u00a0if Sears was the next Berkshire Hathaway<\/a><\/strong>, noting that Eddie Lampert, the company chairman, was essentially doing what Warren Buffett<\/a> did a generation ago: Turning a dying dinosaur into an investment holding company. \u00a0Two year later, it seems that Lampert is carrying on as before, slowly selling off Sears’ valuable real estate while keeping the retail operations afloat, but just barely.<\/p>\n

So, might JC Penney be a candidate for a similar strategy?<\/p>\n

Well, yes, in theory. \u00a0Except that Penney put its real estate up as collateral <\/a>to Goldman Sachs<\/strong> (<\/span>GS<\/a>)<\/span> in exchange for a lifeline loan earlier this year.<\/p>\n

Don’t even think about buying Penney stock, even at current prices. \u00a0In fact, you should use any end-of-year rally as an opportunity to short.<\/p>\n

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DVA, MO and MSFT.\u00a0Click here<\/a>\u00a0to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his\u00a0<\/i>2014 Macro Trend Profit Report.<\/p>\n

This article first appeared on Sizemore Insights as JC Penney On Express Train to Oblivion<\/a><\/p>\n

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