J.C. Penney: In With the Old

NEW YORK (TheStreet) -- The JC Penney (JCP) saga continues, and the stock continues its descent further into the single digits.

Less than two years ago, at the pinnacle of the of the "love-fest" investors had with the notion that then-new CEO Ron Johnson was the answer, this was a $42 stock. Thirty four points later, representing a loss of more than 80%, the plot continues to thicken.

In August, Bill Ackman, who was at the center of the Ron Johnson movement, and had convinced many of my fellow value investing brethren that the company was a solid buy, finally gave up both his board seat, and his 18% stake. Those shares, sold by Citigroup to investors for $12.90, are down 40% in less than two months. Ouch. JCP Chart JCP data by YCharts

It's clear at this point that some believe that the company is in a death spiral, and that it will not be able to turn itself around. Others suggest that the 111 year old retailer should go private, allowing it to coalesce outside the constant scrutiny of the public markets. There's certainly no shortage of opinion, present company included, and the company is still able to grab headlines.

I believe the company's announcement yesterday gets to the crux of the issue. Returning (aka "old") CEO Mike Ullman has brought back the company's "old" logo; you know the "familiar" red logo which spells out "JCPenney". This will replace the newer version, which featured the initials "jcp" in the top right corner of a red, white and blue box. The company made the move after determining that company customers like the "old" logo better than the newer version. The "old" logo is already being used in television commercials, and will now make a comeback on the JC Penney credit card.

Come to think about it, I prefer the "old" logo, too; it is more familiar, and evokes "old" childhood memories of mall shopping. But that sure as heck won't get me back into the mall, or the local JC Penney store. The company tried "new", to a certain extent, with the multitude of changes made by the Ron Johnson regime, but it was still JC Penney, the store where your grandparents used to shop. Those changes didn't work, so the company is reverting back to the "old". But that's not the answer, either. If JC Penney wants to survive, the company may need to completely re-invent itself, and in my view, that includes a name and identity change, not the return to an old logo.

As a value investor, I am always on the lookout for companies that have been beaten down by the markets, more than they deserve. When everyone else is selling, when the crowd has given up, I may become interested, especially if there are company owned assets whose value is not being recognized. In the case of JC Penney, there are significant real estate assets, including 429 owned retail locations, and 18 warehouses, distribution and fulfillment centers, but there's also $5.8 billion in debt. That level of debt, especially for a company in decline is of great concern, and it casts a shadow on the real estate assets. I also can't get too excited at this point that the company trades well below tangible book value. JCP Price / Tangible Book Value Chart JCP Price / Tangible Book Value data by YCharts

I am not interested in JC Penney at these levels; there is not a significant enough margin of safety, and shares could certainly fall further. Sales have not yet stabilized, and unlike the market, I can't get excited over the recent September same store sales down 4%. Still looks like a falling knife, at this point, anyway.

JC Penney needs to truly break with the old; that's the company's only shot, in my view.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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