You Buying What Ron Johnson Is Selling?

JC Penney posted dismal results on Friday. Ironically, these results may be a big reason to stand up and applaud CEO Ron Johnson! Huh?

Looking at the numbers, sales at stores open at least a year fell 21.7 percent in the second quarter ended July 28, steeper than the 17.4 percent drop analysts expected, according to Thomson Reuters.

And total revenues tumbled 22.6 percent to $3.02 billion during the second quarter, below Wall Street's low expectations.

And top Oppenheimer analyst Brian Nagle couldn’t be happier. That’s right happier.

In a live interview of CNBC’s Fast Money Halftime Report Nagle tells us the extreme weakness isn't a negative - it's a positive. “That tells me just how aggressive the management team is, in their efforts to gett the company turned around,” he says.

“I’m looking at JCP from a long-term perspective – weakness in results are transitional issues.”

In other words, Nagle likes where CEO Ron Johnson is going. And thinks Johnson is getting there fast. Perhaps the Street agrees. Shares gained after the results.

Under Johnson, JC Penney is dramatically changing its selection of brands and the store experience. Starting Aug. 1, the chain is installing shops for Levi's and its Arizona brand. The goal is to eventually install 100 shops inside the stores that will replace the sea of mixed clothing racks typical of department stores. It also plans spots in its stores called Town Squares, similar to Apple's Genius Bars, which will offer services and advice.

“The earnings power will be huge when this transition is complete,” says Nagle. "If you look at the earnings potential of the next 3-4 years, the stock is cheap.”

Top trader Josh Brown agrees - at least somewhat. “No retail turnaround happens in 2 quarters,” he says. In fact, he doesn’t understand why any investor ever thought it would.

However, he says in the near-term there are better places to put money to work. “Wait until they get the marketing right and pricing right. Don’t pull the trigger until that happens.” But keep it on the radar.

The usually bullish Pete Najarian sees the story differently. “Until Ron Johnson can show me the money I’m not buying – I’d fade the pop.”

Trader Steve Grasso is also negative on the name and JC Penney bear Stephen Weiss is really negative. “The short story is as good as it ever was,” he insists. “I listened to the conference call – traffic is down again – the average ticket is down – their giving away free haircuts –– the bleeding is continues.”

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Are you buying what Ron Johnson is selling?

Posted by CNBC's Lee Brodie

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Trader disclosure: On August 10, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long INTC; Pete Najarian is long YHOO; Pete Najarian is long SBUX; Pete Najarian is long FB; Pete Najarian is long MSFT; Pete Najarian is long FIO; Pete Najarian is long UPL CALLS; Josh Brown is long AAPL; Josh Brown is long JPM; Josh Brown is long WFC; Josh Brown is long GDX; Josh Brown is long GLD; Josh Brown is long XLU; Josh Brown is long XLF; Josh Brown is long WMT; Josh Brown is long TG; Steve Grasso is long ASTM; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long MO; Steve Grasso is long NVIV; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long XLU

For Brian Nagel
A member of the household of an Oppenheimer & Co. Inc. research analyst who covers this company has a long position in JCP.

For Matt Fruhan
Nothing to Disclose

For Brian Wieser
Pivotal Research Group LLC is an independent equity research company and is neither a broker dealer nor offers investment banking services. Pivotal Research Group LLC is not a market maker for any securities, does not hold any securities positions, and does not seek compensation for investment banking services. The analyst preparing this report does not own any securities of the subject company and does not receive any compensation directly or indirectly from investment banking services

For Steve Weiss
Steve Weiss is short JCP

For Mike Murphy
Mike Murphy is long MANU with wires.