Sears Holdings Corp (SHLD), Macy’s, Inc. (M): Ackman Selling Out of J.C. Penney Company, Inc. (JCP) Changes Little

However, there are still plenty of parallels to draw between the two when it comes to retail execution. As Fool Rick Munarriz recently described, Sears is failing to get any traction, even with its key Kenmore and Craftsman brands, which should be performing well on the back of the housing recovery. But same store sales at both Sears and KMart stores continue to fall.

But CEO Eddie Lampert’s background is one of leveraging asset plays like Sears, not as a retailer, so don’t count on a strong turnaround. Luckily, you don’t have to with Sears to make money, with Lampert having shown in the past a willingness to strip a company apart and sell off the assets if that was the best way to leverage its value.

The wrong side of bankruptcy for a turnaround play

In 1992, Macy’s, Inc. (NYSE:M)  filed for bankruptcy, before being acquired by Federated Department Stores in 1994. The power of the Macy’s brand would lead the company to formally change its name to Macy’s, Inc. (NYSE:M)’s in 2007. As of today, the only name remaining are Macy’s and Bloomingdales, from what had been Robinson’s-May, Filenes, and Marshall Fields among many in it’s “federation” of stores.

The point? Retail is a constantly evolving, changing landscape, and this was true before the advent of web commerce, as the evidenced by the fact that the Macy’s that investors own today was actually Federated or May before 2005. Taken to the next step, investors in any of these companies have been wiped out by bankruptcy at least once. And therein lies the risk with Penney today.

It could very well take a bankruptcy and reorganization for Penney to have a shot at becoming more like Macy’s for investors–that is, a solidly profitable retailer with a clear marketing message and brand, as evidenced by its quarterly earnings, 2.3% dividend, and aggressive share buyback program.

Final thoughts

Ackman’s decision to exit Penney should be a cautionary tale for investors. While his absence will surely help management formulate a strategy and determine a direction, there is just too much risk that it’s too little, too late. And without strong asset value to underpin the share price, plus massive debt obligations that come before shareholders, the potential for a turnaround just doesn’t outweigh the risk of total loss.

The article Ackman Selling Out of J.C. Penney Changes Little originally appeared on Fool.com and is written by Jason Hall.

Jason Hall has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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