There are few department store retailers who are doing as badly as J.C. Penney Company, Inc. (NYSE:JCP), but one that comes close is The Bon-Ton Stores, Inc. (NASDAQ:BONT), which bears some scary similarities to J.C. Penney Company, Inc. (NYSE:JCP) besides stock performance. J.C. Penney Company, Inc. (NYSE:JCP) is down over 30% in less than a week, and The Bon-Ton Stores, Inc. (NASDAQ:BONT) is off from a high of $14.99 a few months ago to be trading in the high ten’s to low elevens, down between 25%-30%. The Bon-Ton Stores, Inc. (NASDAQ:BONT) may be as horrific as an investment as J.C. Penney Company, Inc. (NYSE:JCP).
A Turnaround CEO
Just as J.C. Penney Company, Inc. (NYSE:JCP) brought in CEO Ron Johnson in hopes of turning around the musty chain, so too did The Bon-Ton Stores, Inc. (NASDAQ:BONT) bring in Brendan L. Hoffman. Hoffman has been credited with reviving a moribund Lord & Taylor as CEO. Before that he was CEO of Neiman-Marcus Direct, their e-commerce division. Like Ron Johnson having great success at Apple Inc. (NASDAQ:AAPL), Hoffman did very well at Lord & Taylor and Neiman Marcus.
Hoffman started on Feb. 7 of last year, so he’s had a similar amount of time at the The Bon-Ton Stores, Inc. (NASDAQ:BONT) helm (Johnson started at JCP on Nov. 1, 2011). He presides over 27,000 employees who work at the chain’s 271 stores. Stores under its umbrella include Bon Ton, Elder-Beerman, Younkers, Parisian, Carson Pirie Scott, Bergner’s, Herberger’s, and Boston Store.
Both CEOs came on gangbusters, but the similarities end there. While Johnson went with everyday low prices and cut back on coupons and sales, Hoffman amped up sales and coupons. Hoffman’s The Bon-Ton Stores, Inc. (NASDAQ:BONT) soared and is still up 63% over the last year, while Johnson’s JCP dived 61%. However, both stocks have fallen far from their all time highs to make for some really ugly charts, especially when compared with competitor Macy’s, Inc. (NYSE:M).
The Ugly Numbers
The numbers are almost uglier than the chart. Both companies have big debt; The Bon-Ton Stores, Inc. (NASDAQ:BONT) with $1.02 billion to total cash of $8 million and JC Penney (NYSE:JCP) with $2.98 billion in debt to total cash of $930 million. Proportionally, Bon-Ton’s debtload is much higher.
Then there is the negative EPS of -$0.97 for Bon-Ton and -$4.49 for JC Penney. The returns on equity (-27.43% for JC Penney and -27.18% for Bon-Ton) are negative, as are the operating and profit margins for both. JC Penney reported a Q4 loss of $552 million for a total loss for 2012 of $985 million that cratered the stock over the last week. This news was way worse than expected.
J.C. Penney Company, Inc. (NYSE:JCP) hit another 52 week low on March 6, trading down below $14.50, and received two more downgrades, from Citigroup and Oppenheimer, the very same day. Vornado, an investment firm, is reported to have sold 10 million shares. To add insult to injury, former CEO and Chairman Allen Questrom called for the board to remove Johnson on CNBC on March 6.
Bon-Ton reported a loss of $10 million in November, which was better than expected, improving from a loss of $22 million in Q3 2011. Margins were constricted by discounting, but costs have been contained more effectively. Bon-Ton is reporting again on March 12, and their best guess is anywhere from a loss of $1.35 per share to a profit of $0.20. The company has a yield of 1.90%, but this could be cut just as J.C. Penney Company, Inc. (NYSE:JCP)’s was last spring.
The short interest in both names is huge, with 42.90% in J.C. Penney Company, Inc. (NYSE:JCP) and 30.20% in Bon-Ton.
Compare (To Macy’s, Inc. (NYSE:M))
Contrast those numbers to Macy’s, Inc. (NYSE:M) with a P/E of 12.68 and a 2.00% yield. Macy’s, Inc. (NYSE:M) is close to 52 week highs again. It also owns Bloomingdale’s, giving it a total of 847 stores in the US. Analysts expect 11.90% five year EPS growth (yoy) for Macy’s, Inc. (NYSE:M).
Macy’s, Inc. (NYSE:M) last report on Feb. 26 was really a tour de force for the retailer, notching four straight years of double digit earnings growth. January same store sales were up over 11%, and the company $1 billion in top line sales growth for $27.7 billion in sales in FY2012. For the whipped cream and cherry on top they repurchased more shares, 36 million of them, and doubled the dividend. Sweet!
While even Macy’s, Inc. (NYSE:M) suffered during the recession, as shoppers come back they increasingly come back to Macy’s. If they can’t come into the stores (including Bloomingdale’s) they’re just as willing to go online, and those Q4 numbers revealed a 47.7% rise in online sales for the quarter.
Changing An Outdated Image
Although JC Penney’s has almost four times the store count of Bon-Ton at 1,100 stores, both companies are about the same age: Bon-Ton was founded in 1898 and J.C. Penney in 1902. Both companies were reaching out to the digital era by hiring these CEOs, especially Hoffman for his Neiman-Marcus experience and his digital strategies at Lord & Taylor, like the in-store Prom-A-Palooza connected to their social media sites. Their website, Twitter feed, and Facebook page are just all right when compared with say, anUrban Outfitters, Inc (NASDAQ:URBN), or even tiny Lululemon Athletica Inc (NASDAQ:LULU).
Johnson cleaned up his stores to look brighter and fresher, even buoying the stock of Leggett & Platt, Inc. (NYSE:LEG) with its large retail refurbishing orders. They got in new brands like Joe Fresh and Cosabella lingerie and already had the very popular Sephora beauty products and brand name shops-within-shops. Unfortunately, it still isn’t enough.
Analysts, however, are much more sanguine about Bon-Ton, with estimates of 18% five year EPS growth (yoy) and a price target of $13.38. Despite huge debt and losses the company is losing less money every quarter, if you want to call that accelerating earnings growth. It’s entirely possible they could actually report a profit on March 12, the first for a very long time. It’s unlikely, however, as they also predicted that the loss for full year 2012 would be between $1.35 to $0.60 a share when they reported the January same store sales numbers.
The Bottom Line
Bon-Ton is still taking its time to turn around. While it may not be losing as much money as it was, it’s still losing money. Lucky for them, they’re not the Street’s whipping dog…for now. As for J.C. Penney, the bad news just never ends. If you want a retailer you could do a lot worse than Macy’s.
The article And You Thought J.C. Penney Was Scary originally appeared on Fool.com and is written by AnnaLisa Kraft.
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