Please join us for a flash call on J.C. Penney (JCP) today, September 27th at 1:00pm EDT. The call will take an in-depth look at JCP and why we would play the other side of the 'going to zero' trade.
- Toll Free Number:
- Direct Dial Number:
- Conference Code: 798797#
- Materials: CLICK HERE (slides will download one hour prior to the start of the call)
We'll Take The Other Side of The 'Going To Zero' Trade
This is not for the faint of heart, as earnings are non-existent, there's a lame duck CEO, no square footage growth, and the average American probably could care less if JCP exists or not. But everything has a price - even JCP.
Almost All of Its Problems Are Fixable
Apparel retail might not be the best business in the world, but it is one that allows you to shake the etch-a-sketch clean every 13 weeks. Our work shows that JCP's problems have been largely due to pricing, lack of promotions, and the omission of product that the consumer had otherwise grown to rely upon.
There's a Steep Gross Margin Opportunity
Johnson took away $2.5bn in revenue at a 48% GM, and substituted with less than $1bn of 33% GM product. There's over 500bp in GM recovery right there.
This Equity Offering Solved More Problems Than It Caused
As tight as cash seemed to be, JCP did not need this deal now. It was poorly managed/telegraphed. But the reality is that liquidity is no longer a near-term risk. This makes the 'going to zero' call really tough to play for. It also takes risk of factoring companies limiting goods out of the equation. Lastly, it accelerates the quality and quantity of CEO candidates.
Another Way To Play the JCP Recovery is to Short KSS
Our work suggests that KSS stole $800mm from JCP, and there's nothing permanent about that share shift. JCP is gunning for the business, and whether it succeeds or not, it will hurt KSS while it tries.