JCP: Right On The Money

07/24/12 02:38PM EDT

Pershing Square’s Bill Ackman can try to save his investment in JCPenney (JCP) all he wants but the market won’t allow it. Since JCPenney CEO Ron Johnson first presented his strategy to reinvent the department store concept as “America’s Favorite Store,” the stock has continued to decline in price as investors lose confidence in his ability to turn around the retailer.

Our Retail analysts have been particularly keen on shorting JCPenney over the last year and with good reason. On June 11th of 2011 (pre-Ron Johnson), Managing Director of Retail Brian McGough went on CNBC and in an interview with Maria Bartiromo, said that JCPenney would be lucky to earn a dollar on earnings per share in 2012. This was when the Street was at $2.77 per share. Estimates have come down meaningfully to $1.27 but still need to be revised down an additional 20%.

Today, Hedgeye CEO Keith McCullough shorted JCP in the Virtual Portfolio yet again based on our research and quantitative setup. We have shorted JCP 10 times in a row over the past 14 months and profited each time. Our bearish thesis isn’t going away anytime soon.

JCP: Right On The Money - JCP SSScomps

There are many reasons why we’re bearish. If you check the above chart, you can see that Comps were down 19% in the first quarter and aren’t expected to turn positive for the remainder of the year. Add in the capital expenditures associated with the rebranding of the stores, the inability to gain traction with the new pricing strategy, the nebulous outcome of how well these new stores will work and the lack of “exciting” and “quality” brands being offered and you can see the cynicism related to the company.

JCP: Right On The Money - JCP brandexposure

Courtesy of the Hedgeye Retail team, here is a brief synopsis of what JCP is focusing on over the next few months in its stores. Whether or not this roadmap gets you excited about the company is really in the eye of the beholder:

• This week, JCP will showcase its new store design that will rollout into its top 700 stores between now and 2015 to its top vendors.

• The focus in August will be on Blue Jeans, and 6 shops will debut with merchandise from Levi, Buffalo Jeans and Arizona (one shop in Men’s and one in Women’s per brand).

• The Levi shop will sell a variety of new styles for $40 a pair, and offer shopping help through an iPad-equipped “Denim Bar.”

• In September, JCP plans to open an Izod men’s shop, Liz Claiborne women’s, and one “JCP” branded shop per gender.

• In all stores, checkout counters will be replaced with comfortable seating areas and long tables boasting built-in iPads and wireless internet.

• In August, Town Square will begin offering free haircuts for elementary students in an effort to drive traffic during retail’s coveted “back to school” shopping season.

• JCP will scrap its 96-page monthly publication, and replace it with 2 weekly circulars that highlight the new merchandise being offered (i.e. denim in August).

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