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J.C. Penney — A Little Math Tempers Enthusiasm

J. C. Penney analyst days are always eventful. And Wednesday's analyst day did not disappoint.

CEO Ron Johnson led a store tour of the latest and greatest format that he believes will catapultJ.C. Penney to the title of “America’s favorite store.”

JC Penney
Daniel Acker | Bloomberg | Getty Images
JC Penney

At one point, Johnson told us "shops-in-shops" were producing same-store sales results 20 percent higher than the rest of the store. Markets said yippee on the news as J.C. Penney shares catapulted 11 percent higher.

Umm, 20 percent higher than what? For the record, same-store sales for the second quarter fell 22 percent. The headline sounded encouraging, but the math quickly brought us back to reality.

Not to mention that Johnson noted that the last two weeks had been tougher than the retailer expected. At that point, investors slammed on the brakes in terms of enthusiasm.

Johnson keeps telling us turnarounds take years. We know that. He should have considered that point before giving us an earnings guidance that he removed months back.

So, now what? Seems J.C. Penney is becoming a mall. The company plans to have 40 shops-in shops by the end of next year with the eventual goal of setting up a hundred.

J.C. Penney is also intelligently planning inventory purchases to be in-line with first-half results, which were down 20 percent. The company would rather chase inventory than deal with more markdowns. After all, the goal is to be 85 percent "everday low price" and 15 percent clearance. Controlled inventories and realistic expectations are something to be applauded.

Now, let’s get back to the mall issue. This seems to be the trend. Countless retailers are adding exclusive brands or not so exclusive. So at the end of the day, we have to ask the question: are brands just cannibalizing themselves by adding distribution points?

There was one sigh of relief today. That came after Pershing Square Founder and CEO Bill Ackman grabbed the microphone. I was afraid he would announce again that sales have bottomed. (Remember earlier this year when he was wrong about second-quarter sales?) At least there was some relief.

-Guest Blog by Stacey Widlitz

Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years. Follow Stacey on Twitter @StaceyRetail.

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