Ackman resigns from JC Penney board

Associated Press | 8/7/2013, 3:29 p.m.
The boardroom drama may be over, but J.C. Penney is still grappling with an uncertain future. William Ackman has resigned ...

Ackman joined Penney's board in February 2011 after pushing for a seat, and was the one who pushed the board to hire Johnson, a mastermind of Apple Inc.'s successful stores, as someone who could inject new energy into a tired company.

Ackman was seen glowing in late January 2012 as Johnson presented his reinvention plan to an audience of analysts, investors and big name designers including Ralph Lauren and Calvin Klein. The plan called for the elimination of most discounts in favor of "every day'' lower prices. Johnson also wanted to carve Penney into mini-shops devoted to brands or types of merchandise.

The new pricing plan started Feb. 1, 2012, and was an instant disaster. Sales plummeted, and so did investor confidence.

Penney amassed nearly a billion dollars in losses and its revenue dropped 25 percent for the fiscal year that ended Feb. 2 in the first year of the failed transformation strategy. The trend continued into the first quarter, as Johnson's legacy remained. Ackman remained Johnson's supporter until weeks before he was fired.

Since coming back to Penney in April, Ullman has worked to stabilize the business by bringing back basic merchandise and more frequent sales eliminated by Johnson in a bid to attract younger, hipper customers. But many analysts believe that while traffic is improving, there has been no evidence of a turnaround yet as the company heads into the home stretch of the critical back-to-school shopping period.

There are also increasing concerns about Penney's financial liquidity. Earlier this month the retailer said it expects to finish the second quarter with about $1.5 billion in cash on its balance sheet.

Analysts and suppliers will dissect Penney's second-quarter financial results on Aug. 20, but analysts expect the numbers to be bad. Binetti expects the company to report that revenue at stores opened at least a year fell 14 percent from a year ago, when that measure dropped 21.7 percent. Analysts on average expect a 7.9 percent decline, according to FactSet.

These figures are a key indicator of a retailer's health because they exclude revenue at newly opened stores.

Michael Cipriani of Rosenthal & Rosenthal, a lender in the clothing industry, said that last week it put Penney's suppliers on a short leash, financially backing orders for Penney for just two to three weeks out. The move was intended to limit its exposure until it can see how Penney succeeds with its turnaround efforts.

Rosenthal & Rosenthal is a factor which makes cash advances to suppliers based on the goods they sell to the merchant. The decision was made based on financial information and the boardroom warfare taking place, Cipriani said.

The lender only represents 1 percent of Penney's suppliers, but it move underscores how uneasy vendors have become. If vendors and factors become wary of a store's creditworthiness, the retailer may have to pay suppliers cash upfront for goods, which can drain cash quickly.

Walter Loeb, a New York-based retail consultant, however, says that what's important is that Penney still has support from the major suppliers.

Loeb added that the addition of Tysoe to the board will "strengthen the financial stability.'' He noted that in the late 1990s, Tysoe helped Federated Department Stores come of bankruptcy and avoid a takeover by real estate magnate Robert Campeau.

Penney's stock was down nearly 4 percent, or 52 cents, to $12.65. The share price has fallen nearly 38 percent since the beginning of the year and almost 70 percent since early last year when Johnson unveiled his transformation plan to investor enthusiasm.