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Pro Slams JC Penney, Calls Margins 'Horrible'

Thursday, 16 May 2013 | 6:37 PM ET
JC Penney Reports Dire Earnings
Thursday, 16 May 2013 | 5:15 PM ET
JC Penney's CEO says the company seeks to restore traffic and purchase conversion in stores, with CNBC's Courtney Reagan. And Eric Jackson, of IronFire, highlights the so-called Dogs of the Nasdaq.

J.C. Penney's operating margins plunged in the first quarter on weak sales and heavy clearance deals, but CEO Myron Ullman pledged to offer more promotions to turn things around.

The retailer's gross margins came in at 30.8 percent, nearly 7 percentage points lower than a year earlier. Total sales and same-store sales both posted double-digit declines, in line with the company's warning last week.

JCP suffered a 25 percent drop in sales last year when then CEO Ron Johnson stopped offering customers coupons because, he thought, there was no need for a coupon when your prices are at bargain prices every day. It turns out that coupons made Penney's price-conscious customers feel like they were getting a deal, even if a coupon wasn't necessary to get the deal.

After combing through JCP's results, professional traders Karen Finerman and Tim Seymour agreed the weak results can't be pinned on Ullman. After all, he only returned to Penney as CEO last month after the retailer fired Johnson.

Nevertheless, Finerman thinks JCP's results were so bad, she sees no reason to get behind the stock.

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"That gross margin at a little over 30 is horrible," said Finerman, president of Metropolitan Capital, on CNBC's "Fast Money." "Maybe they can turn it around. I don't know. But I wouldn't buy it. No way."

The cash flow side of its business is in trouble, too, Finerman added.

"They have stores that are half built. They've got to spend money to finish them," she said.

Seymour, founder and managing partner of Triogem Asset Management, played devil's advocate. He noted the retailer is "getting back to basics," suggesting such a monumental change in leadership and strategy takes time. He stopped short of revealing how he'd trade the stock, though, if at all.

— Reuters contributed to this report

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