April 9, 2013 / 8:39 PM / 5 years ago

UPDATE 1-No quick fixes expected at J.C. Penney from returning CEO

(Updates shares, performance vs rivals, same-store sales)
    * Shares down 12 percent
    * Debt protection cost rises
    * Ullman useful for reassuring vendors, employees-analysts

    By Phil Wahba
    April 9 (Reuters) - Myron "Mike" Ullman's return to the helm
at J.C. Penney Co Inc unnerved investors, who said his
experience was welcome but was not a cure-all for the retailer's
sliding sales and dwindling cash.
    Shares fell 12.2 percent, on the highest volume in the
stock's history, and nearly reached their lowest levels since
2001. The cost of insuring Penney's bonds against default rose
3.5 percent, according to data tracked by Markit.
    Ullman was CEO from 2004 to 2011, before being replaced by
Johnson, whose decision to remove coupons and discounts in favor
of "everyday low pricing" last year was blamed for a 25 percent
drop in sales in 2012.
    But Penney also lagged rivals Macy's Inc and Kohl's
Corp in terms of sales growth coming out of the
2007-2009 recession. On Ullman's watch, the 111-year-old
retailer got rid of its catalog, decimating a once-robust
e-commerce business, while home goods sales shriveled. 
    In a May 2012 presentation, investor William Ackman, who
hired Johnson, called Penney "chronically mismanaged" during
Ullman's tenure.
    "Ullman inherits a customer base that, in our view, feels it
has been betrayed, and he will be virtually powerless to prevent
JCP from burning a substantial amount of cash in 2013,"
PiperJaffray analyst Alex Fuhrman said. He expects Penney to use
up to $1 billion in cash this year.
    While Ullman could not be reached on Tuesday, he told
Reuters on Monday that while at the helm, Penney's market value,
sales and profits had reached all time highs. "At the end of the
day, the results speak for themselves," Ullman said. 
    As much as Wall Street clamored for Johnson's ouster,
analysts warned Ullman's return was not a long-term solution as
he tries to win back shoppers and mollify worried vendors.
    Dow Jones reported that Penney's same-store sales were down
more than 10 percent in the fiscal first quarter, citing
sources, underlining the depth of the problem Ullman faces. Wall
Street analysts on average expect same-store sales to fall 12.7
percent in the quarter, according to Thomson Reuters data.
    "Ullman makes sense in the interim, given the urgent cash
situation. Ullman is also a known partner to the vendors," UBS
analyst Michael Binetti wrote in a note on Tuesday.
    In addition to the pricing strategy, Johnson's plan to
remake Penney included the roll-out of branded boutiques within
stores - an expensive proposition that many observers expect
Ullman to scale back to conserve cash since store remodeling 
eats up cash.
    Under Johnson, Penney opened shops for fashion brand Joe
Fresh and last week opened the first two shops in its revamped
home section, long Penney's weakest business.
    But Binetti and others questioned their popularity. Barclays
Capital credit analyst Hale Holden said after a visit to a New
York City store last weekend that the more traditional offerings
were attracting the bulk of the traffic.
    Ullman's first task will be to win back shoppers alienated
by Penney's removal of coupons and the move to trendier items.
Analysts warned that Penney would have to spend heavily on
advertising and couponing to win back shoppers.
    While Ullman is well regarded in the industry, his biggest
contribution, analysts said, will be his longstanding
relationships with vendors. That will potentially win Penney
more time while it rights itself.
    "Our best guess is given JCP's scale and relative importance
combined with Mr. Ullman's historical relationship with the
company's vendors probably creates a pause," Barclays' Holden
said in a note.
    For all the criticism heaped on Johnson, many analysts say
there are changes he brought in his 17 month-term that Ullman
would do well to keep in place, starting with the neater look of
the stores, long faulted for looking like bazaars.
    "The stores look cleaner. The stores look more exciting
today than they have ever looked," said retail consultant Walter
Loeb, a frequent critic of Johnson.

 (Reporting by Phil Wahba in New York; Editing by Jeffrey
Benkoe, Ben Berkowitz and Leslie Gevirtz)

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