And Penney employees found out Wednesday that things can get worse. About 2,200 people were laid off in stores and district offices.
Some bullish analysts changed their tunes Wednesday, and the stock price has lost 35 percent of its value in just the last five trading days. Former Penney chairman and CEO Allen Questrom said the board needs to act, adding that chief executive Ron Johnson should be replaced.
The third week of a trial over a contract dispute with competitor Macy’s over Martha Stewart merchandise continued in a reporter-packed New York courtroom. The trial may be adjourned until April because of scheduling conflicts.
The Plano-based department store chain’s new low points included Tuesday’s news that 10 million shares of stock were sold by a major shareholder who, oh yes, happens to be a board member.
Wednesday, Penney’s stock price fell 53 cents to hit a 52-week low of $14.43 a share.
All that follows last week’s news that Penney lost almost $1 billion and had a sales decline of a whopping $4 billion, falling to $13 billion in 2012.
Most of Wednesday’s staff cuts happened in about 100 stores that had significant sales declines last year, and the employee count will be reduced to match each location’s new level of business, said spokeswoman Daphne Avilla.
Administrative and back office jobs were cut across the chain of 1,100 stores and in 55 district offices.
In stores, department management duties are also being consolidated.
Staff cuts “will not impact the store experience,” Avilla said. “We’re not cutting folks on the floors. And our hope is to later be in a position to build back up our workforce.”
Penney’s stores, which range from under 65,000 square feet in small towns to more than 200,000 square feet in major malls, employ from 50 to 400 people per location.
Martha Stewart trial
Finally, on Friday, even if the trial isn’t over, New York Supreme Court Justice Jeffrey Oing will decide what sheets and towels Penney can sell starting in May when the retailer plans to have new home departments ready for shoppers. Martha Stewart designed products in a few categories that were believed outside her agreement with Macy’s.
Last summer, the judge issued a temporary order that prohibited Penney from selling Martha Stewart-branded products in the key home categories of bed, bath, tabletop and cookware. Instead, Penney developed products in those categories with Stewart’s help under the Everyday brand.
On Friday, Oing will rule whether Martha Stewart Living’s involvement in designing that product violated the Macy’s contract.
Penney is developing alternate plans and will make a statement after the judge rules, Avilla said.
Questrom, who spent five years in the early 2000s at Penney pulling it out of years of missteps, is frustrated that the board hasn’t forced Johnson to take his ideas to Middle America more slowly and test new merchandise and pricing.
“All these people are worried about Johnson keeping his job. It’s crazy,” Questrom said in a phone interview Wednesday. “What about all these Penney employees?
“It’s an old company, and he’s putting the nails in the coffin if they don’t start making some changes. There’s no reason to wait another quarter.”
The board “has allowed this to go on too long,” Questrom said. “I have to believe they are looking for his replacement.”
Silence
Penney board chairman Tom Engibous, the retired chairman and CEO of Dallas-based Texas Instruments Inc., didn’t respond to a request for comment. Other board members also declined to comment.
Johnson declined a request for an interview as well.
One could say that board member Steven Roth, chairman of Vornado Realty Trust, commented on Johnson’s performance and Penney’s prospects Tuesday when he sold 10 million shares of Penney stock. Roth and Pershing Square Capital founder William Ackman joined the board in 2011 after they amassed a 26 percent stake in Penney. Ackman has been Johnson’s most vocal supporter on the board but hasn’t commented this week.
On Wednesday, some analysts who had supported Johnson’s plans to turn Penney into a collection of mini shops within stores and adopt an everyday-low-prices strategy downgraded Penney.
Citi’s top retail analyst, Deborah Weinswig, visited Plano on Tuesday and met with Johnson and other top executives. She concluded that Penney will either continue limping along and spending money or the company will be sold and/or “senior leadership” will leave.
She downgraded Penney to a neutral rating from a buy and titled her report: “Wish I knew then what I know now.”
“We believe the potential for asset sales, a private takeover and senior leadership changes could support the shares and limit further downside from here,” Weinswig wrote.
Oppenheimer analyst Brian Nagel downgraded Penney stock after concluding that the company could go through all of its $900 million in cash this year and continue to post losses.
“The market is unlikely to afford JCP any benefit of the doubt until clear evidence of a turn emerges,” Nagel wrote in a report.
Johnson promised a year ago that Penney’s transformation would be self-funded, but asset sales were necessary last year and will likely continue, analysts said. JPMorgan analyst Matthew Ross said Penney will probably have to borrow money to keep building new shops.
