Billionaire fund manager Bill Ackman of Pershing Square is a member of the board of directors at J C Penney Company Inc (NYSE:JCP), so he does have some kind of an interest in the success of the company, which has been undergoing a paradigm shift under the direction of former Apple Inc (NASDAQ:AAPL) executive Ron Johnson, who headed up the Apple Store. Ackman was one of the directors who agreed to hire Johnson, and he has been working to develop an Apple-like retail model at J C Penney Company Inc (JCP).
However, with J C Penney Company Inc (NYSE:JCP) sales numbers dropping in multiple quarters – including a 26-percent drop compared to the same quarter a year ago – there have been many investors and observers who have backed away from JCP stock due to the numbers. Is Ron Johnson’s tenure at CEO going to last much longer? Ackman, who discussed J C Penney Company Inc (JCP) extensively in an interview on CNBC Tuesday morning, maintained a level of confidence in Johnson and where he is taking the company, saying he needs time to implement his plan.
Though the stock is down 50 percent from its 2012 highs (trading at about $18 per share this week), Ackman is steadfast in his support. “J C Penney has always been a promotion-heavy company in the past,” he said, “but now Ron Johnson is turning it into the largest specialty retailer of all time, which we’re calling The New JCP (which accounts for about 11 percent of the overall business at this point). What’s he’s done is gotten rid of all the couponing and special promotions and taken the prices down to levels where customers would pay with all the promotions and discounts.” He added that the new model is producing results – he noted that The New JCP retail space is producing about $270 per square foot in sales, while the rest of the “old” J C Penney Company Inc (NYSE:JCP) is producing about $135 per square foot.
“The way you have to look at this is two companies,” Ackman said. “One is a startup called New JCP, which started August 1 and has gone from zero to 7 million square feet in a month. His plan is to convert all 111 million square feet of retail space over the course of the next three to four years, and get the entire line moving from $135 to $250 a square foot while reducing overhead costs. He says this separates the New JCP from other retail startups because it doesn’t have to find and buy real estate – and since it already has the space, startup costs will be down, while the company projects better sales per square foot.
As of the end of June, Ackman has 12 percent of his Pershing Square portfolio – more than $900 million – invested in JC Penney Company Inc (NYSE:JCP) stock. You can check out the whole 14-minute interview and decide for yourself. Is Ackman truly on to something in terms of taking a long position on this company, or is he talking as a biased member of the board and a significant investor in the success of the company? Would be take a position in JCP moving forward? Let us know your thoughts.