J.C. Penney’s Ron Johnson Transformation… With Martha Stewart (JCP, MSO, AAPL, M, SHLD, HD)

J. C. Penney Company, Inc. (NYSE: JCP) is a company which many investors and outsiders expect to be in a transformation.  The first such addition under new management is a stake and investment in Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) as a strategic alliance that will create in-store Martha Stewart shops inside the J.C. Penney locations.

MSLO has had prior product distribution deals with Macy’s, Inc. (NYSE: M) and also with K-Mart under Sears Holdings Corporation (NASDAQ: SHLD).  The Macy’s deal still has many key Martha Stewart products but Martha Stewart products have lost that Kmart deal and Martha Stewart has moved a home furniture, bath, paint,, kitchen and other efforts to The Home Depot Inc. (NYSE: HD).

Ron Johnson, the guru who was credited with launching the Apple Inc. (NASDAQ: AAPL) retail look, theme, and strategy, has now taken over as head of J.C. Penney and this is his first real public change of substance.  Customers will get to start entering Martha Stewart stores starting in February 2013. 

This is a 10-year commercial agreement where both companies will jointly develop an e-commerce site as well.  MSLO is expected to receive more than $200 million from J. C. Penney over the initial 10-year contract period.  Another feature of the pact is that J. C. Penney spent some $38.5 million for 11 million newly issued shares of Martha Stewart Living Omnimedia (at $3.50 a share) and it will now hold a 16.6% stake in MSLO and will have a seat on the board of directors.

J.C. Penney shares are down about 4 cents at $33.26 versus a 52-week trading range of $23.44 to $41.00.  The real win is in Martha Stewart Omnimedia shares, where they are trading up 28% at $4.06 versus a 52-week range of $2.77 to $5.49.

JON C. OGG