Kohl’s Corporation (KSS): Can J.C. Penney Company, Inc. (JCP) Recover After Ackman’s Exit?

Page 2 of 2

An article posted on Forbes from April of this year examined how customers’ perceptions of J.C. Penney and Kohl’s Corporation (NYSE:KSS) had changed since the beginning of 2012. Consumers were asked whether they had a positive or negative view of both brands. The trend is not encouraging for J.C. Penney, which was viewed more positively at the beginning of 2012. Consumers’ perception of J.C. Penney fell as Ron Johnson’s efforts continued. By April of 2013, Kohl’s Corporation (NYSE:KSS) was viewed far more positively than J.C. Penney.

Kohl’s main advantage is its ability to keep costs low. In 2012 J.C. Penney spent 41% of its revenue on operating expenses, compared to Kohl’s 26%. Kohl’s spends less on operating expenses in absolute terms than J.C. Penney, even though Kohl’s had nearly 50% higher revenue in 2012. Kohl’s ability to run a lean company is what sets it apart from J.C. Penney.

Macy’s, Inc. (NYSE:M) is a bit more upscale than J.C. Penney and Kohl’s, and while the recession wasn’t kind to the company, both revenue and profits have rebounded as the economy has recovered. One big Macy’s, Inc. (NYSE:M) initiative is its ambitious ship-from-store program, where online orders can be fulfilled from both warehouses and stores themselves. This initiative helps ensure that merchandise is available on Macy’s, Inc. (NYSE:M) website even if it’s out of stock at the warehouses.

Electronics retailer Best Buy is doing something similar, and J.C. Penney would likely benefit from adopting this program. This would make J.C. Penney more competitive against other department stores and online retailers.

The bottom line

J.C. Penney has an extremely tough road ahead of it. Customers may not return after the Ron Johnson debacle, instead choosing Kohl’s or another competitor. J.C. Penney has only a couple of years to sort this out before it runs out of cash, and greater debt and interest payments will only make it more difficult. The odds of a full recovery are low, and the risk involved seems far too great to buy the stock on a turnaround bet. I’d avoid J.C. Penney.

The article Can J.C. Penney Recover After Ackman’s Exit? originally appeared on Fool.com and is written by Timothy Green.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2