Dispute Between Macy’s, Penney Goes to Court (M, JCP, MSO)

Back in February, J.C. Penney Co. Inc. (NYSE: JCP) signed a contract with Martha Stewart Living Omnimedia (NYSE: MSO) to create Martha Stewart Living stores within Penney’s own stores. Macy’s Inc. (NYSE: M), which believed it had an exclusive contract to the Martha Stewart brand, was not amused, and was able to get injunctive relief to stop Penney from moving ahead with the plan.

Now Macy’s has filed suit seeking damages from Penney for interfering with Macy’s contract with Martha Stewart. Penney argued — unsuccessfully — that the ‘store-within-a-store’ concept did not violate the contract between Macy’s and Martha Stewart.

Martha Stewart Living filed an appeal of the injunction last week. Arguably Martha Stewart needs the deal with Penney more than Penney needs it. The company has been unprofitable in eight of the last nine years, mainly on the drop in its publishing and broadcasting businesses.

Today’s lawsuit filing raises the stakes again for Penney and its struggling CEO, Ron Johnson, who introduced the concept in January to much fanfare. Penney’s stock has tumbled from a year-to-date high of more than $43 to around $24 today as revenues and profits have remained elusive.

Penney’s shares are up 1.5% today at $24.03 in a 52-week range of $19.06-$43.13. Macy’s shares are up 0.6% at $38.77 in a 52-week range of $22.66-$42.17.

Shares of Martha Stewart Living Omnimedia are up 1.3% today at $3.12 in a 52-week range of $2.77-$5.19.

Paul Ausick