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J.C. Penney Set for a Comeback?

JC Penney
JC Penney

Shares of J.C. Penney are down 33 percent in the last year and down 26 percent since Ron Johnson took over as CEO on Nov. 1, 2011.

Macy’s and big-box competitors such as Target and Wal-Mart Stores continue to gain market share over J.C. Penney. Will the retail giant make a comeback or will it continue to fall?

In January, Johnson told CNBC, “We’re going to get little better month by month and pretty soon the momentum will kick in, and we hopefully will become America’s favorite store.” Six months have passed and the momentum has yet to kick in.

Despite J.C. Penney’s recent downturn, Deborah Weinswig, retail analyst at Citi Investment Research, is confident the retailer will turn around.

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“What we want to watch is what happens in August, where 47 percent of their product is new and their marketing strategy is tweaked,” Weinswig said. “August is where we really start to write the report card.”

She explained that Johnson took over J.C. Penney with the mindset that it would start from scratch. The pricing strategy has changed as a result and many consumers do not understand how it works; this could account for some of the recent decline.

“We had done our own consumer survey back in March and it showed that two-thirds of consumers were confused about the pricing,” Weinswig said. The survey showed that J.C. Penney was starting to lose consumers to other retailers such as Macy’s.

Even if J.C. Penney’s shares rebound in August, as Weinswig predicts, there could be better places to invest in the retail industry.

Macy’s continues to gain shares from J.C. Penney. Big-box stores that sell apparel, such as Target and Wal-Mart, also have been significant beneficiaries.

“There are certainly big-box retailers that have been winners here and ones that you might want to look at as potential investment vehicles,” Weinswig said.

While investing in big-box stores may involve less risk and positive short-term return, Weinswig is confident that investing in J.C. Penney will benefit investors in the long run.

“They are really reinventing the store, and one of the reasons I do believe in this company and this stock from my head to my toes is because it needs to work in order for brick and mortar retail to work,” Weinswig said.

Weinswig explained that Johnson’s willingness to try new strategies and change the company from the bottom up is what will make J.C. Penney a successful company in the future. Investing in the retailer now is betting on a turnaround.

However, for investors who are looking for high dividends, J.C. Penney may not be the stock of choice. “I don’t know if they will bring the dividend back any time soon,” Weinswig said.

—By CNBC.com’s Madeline Laskoski

Additional News: No Love Letters for J.C. Penney’s Ron Johnson

Additional Views: J.C. Penney Has Hit ‘Bottom’: Ackman

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Disclosures:

Disclosure information for Deborah Weinswig was not immediately available.

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