Update: Barneys CEO Questrom Heading to JC Penney

Updated from 12:07 p.m. EDT

Allen Questrom, after spending a little over a year trying to restore the luster to Barneys department stores after its emergence from bankruptcy, is leaving to head JC Penney (JCP Quote), JC Penney announced Thursday.

Questrom, 60, will become chairman and chief executive officer of the Plano, Texas-based retailer on Sept. 15.

JC Penney closed Thursday's session up 2 3/8, or 16%, at 17 1/4.

Questrom's departure from Barneys as chairman and chief executive officer follows the exit of four other Barneys top executives in late June to join online retailer Eve.com, which itself is run by Thomas Shull, a former chief executive officer of Barneys.

Questrom formerly ran Federated Department Stores (FD Quote), which he joined in 1990 just after it filed for bankruptcy. Questrom left in 1997, and later sued Federated for $47 million in back pay, which he argued he was entitled to under the incentive-based portion of his compensation package. In February, a judge threw out the case.

"Allen has a superior record of success in the industry," said James Oesterreicher, the present chairman and chief executive officer of JC Penney. "He led Federated Department Stores out of bankruptcy and turned it into one of the largest department store companies in the country."

Questrom's hiring marked a change for JC Penney, which in the past has chosen to groom its executives from within. "It's a breath of fresh air," said Walter Loeb, a long-time retail analyst who heads equity research at Loeb Associates and publishes the newsletter the Loeb Retail Letter. "This is a closed society, really." Loeb does not perform underwriting. Loeb has a strong buy rating on JC Penney because of its low stock price. But he said the retailer, the fifth largest in the U.S., has been in steady decline for about five years. "It's a matter of merchandise," he said of JC Penney's sinking fortunes.

He contrasted JC Penney with Kohl's (KSS Quote), which has been successful at offering quality, fashionable clothes at reasonable prices, he said, with investors following in tow. Kohl's trades at over 78 times earnings, while JC Penney, whose stock is off around 62% from its 52-week high, trades at around 13 times earnings.

"It needs a real push," said Loeb, who praised JC Penney's hiring of Questrom. "I admire him because not only does he motivate people, but he excites people with merchandise. It's a very opportune time to make a change."

Loeb suggested that JC Penney shut down some its less profitable stores, and aggressively revamp its merchandise, particularly its clothing.

The company operates about 1,100 JC Penney stores in the U.S., Puerto Rico and Mexico. In addition the company also runs over 2,600 Eckerd drugstores.