Wed, Apr 10, 2013 - Page 15 News List

JC Penney rehires former CEO to rescue dying sales

AP, NEW YORK

JC Penney is hoping that its former CEO can revive the retailer after a risky turnaround strategy backfired and led to massive losses and steep sales declines.

Penney’s board of directors ousted CEO Ron Johnson after just 17 months on the job. The department store chain said in a statement on Monday that it has rehired Johnson’s predecessor, Mike Ullman, 66, who was Penney’s CEO for seven years until November 2011.

The announcement came amid a growing chorus of calls from critics — including another former Penney CEO, Allen Questrom — for Johnson to resign as they lost faith in an aggressive overhaul that included getting rid of most discounts in favor of everyday low prices and bringing in new brands.

The biggest blow came on Friday from Johnson’s strongest supporter, activist investor and board member Bill Ackman, who had pushed the board in the summer of 2011 to hire Johnson to shake up the retaile’s dowdy image.

Ackman, whose company, Pershing Square Capital Management, is Penney’s biggest shareholder, reportedly told investors that Penney’s execution “has been something very close to a disaster.”

On Saturday, Ullman received a telephone call from Penney chairman Thomas Engibous asking him to take back his old job, Penney spokeswoman Kate Coultas said. The board met on Monday and decided to fire Johnson.

Until early last week, some analysts thought the board would give Johnson, a former Apple Inc and Target Corp executive, until later this year to reverse the sales slide.

A key element of Johnson’s strategy was opening new shops featuring hot brands. They began opening last year and had been faring better than the rest of the store.

“I truly believed that he had until holiday 2013,” said Brian Sozzi, CEO and chief equities strategist of Belus Capital Advisers. “Today’s announcement is an indictment of his strategy.”

Sozzi said he thinks that Ullman will only serve as an interim CEO. He expects the Texas-based company’s board will hand off the job to another executive who may want to take the company private.

Johnson’s removal marks a dramatic fall for the executive, who came to Penney with much fanfare. However, his strategy led to spiraling sales and losses.

During the fourth quarter that ended on Feb. 2, Penney’s loss widened to US$552 million, or US$2.51 per share, up from a loss of US$87 million, or US$0.41 per share a year ago. Total revenue dropped 28.4 percent to US$3.88 billion.

For the fiscal year, Penney lost US$985 million, or US$4.49 per share, compared with a loss of US$152 million, or US$0.70 per share, in the year ended on Jan. 28 last year.

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