This announcement that JCP President Michael Francis is leaving the company after less than 9 months on the job is not only embarrassing, but it might have severed the last shred of credibility Johnson had with Wall Street.
After the close, JCP announced that Michael Francis -- President and head of merchandising -- is leaving the company 'effective today'. There's been a lot of moving parts in the JCP ranks, but this one is a disaster. Francis just joined from Tar-jay 8 1/2 months ago. He's been one of the two key operating people that flanked Ron Johnson on stage in the past two investor meetings.
Make no mistake, this is an unmitigated disaster, for four reasons. 1) Francis just hired a merchandising organization. Now he's out. What does that tell the troops as it relates to organizational stability? 2) He probably did not get canned because 'he was smoking plan.' 3) What happened to a long-term plan? 4) ) Most notably, this blows Johnson's credibility, which was already hanging by a thread after how poorly he handled the 1Q release, and sold stock before the event.
One thing we'll give Johnson is that he sure is decisive. He made a mistake, and he's fixing it -- quickly. But this was a big mistake...and one that he paraded around to customers, investors, and future employees. This was a biggie.
We have keep ourselves honest and look at this and think that anyone who was hanging on to any shred of this as a turnaround has to throw in the towel -- thereby making 'short JCP' a consensus call. But on the other hand, the $1.40 GAAP consensus needs to come down below a buck. Until it does, this thing is flat-out expensive.
We continue to believe that this is all about duration. Johnson is paid to get this right in another 5-years. That might or might not happen. But we think the real call relates to the impact JCP will have on the retail ecosystem while it evolves. Today's move sends an ugly sign to Wall Street, but an even uglier one to vendors. KSS and Macy's must be licking their chops.
Here's a couple of interesting YouTube-style sound bites from the analyst Meeting that took place just 1 months ago on May 15.
- Johnson "...Michael [Francis] and I are looking forward to sharing our vision with you [later in the meeting]."
- Francis: ... our merchants have totally embraced the new direction. We have a lot of them here today, but they are loving the chance to compete on product. They never sit in a room – 40% of the time last year was what's the price tomorrow, what's the price next week? Never happens. The only question is what's the next great product we can develop? How do we present it better? How do we get it in store on the right inventory? How do we win on merchandise? And the teams are doing a fabulous job.
[Hedgeye Note: Guess not...]