JC Penney Will Have to Close More Stores

In its most recent quarter, the figures gave proof that J.C. Penney has barely recovered from a downturn that has lasted for three years. Revenue was fairly stable at better than $17 billion from fiscal 2010 to 2012. After a plunge below $12 billion, revenue has barely recovered. Management may be able to stabilize revenue just above that, but not by much. In that most recent quarter, revenue was a little better than flat, up from $2.80 billion in the period a year ago to $2.86 billion. The retailer forecast that same-store sales might increase by 5% in the upcoming year. Unfortunately, very little was said about revenue. Good news travels fast.

J.C. Penney stores cannot all be profitable. The company loses too much money. Operating expenses are down, but not by much. To make matters worse, J.C. Penney has overwhelming competition online. Depending on the type of merchandise, it faces retailers, both in the brick-and-mortar world and online, that range from Target Corp. (NYSE: TGT) to Macy’s Inc. (NYSE: M) to Amazon.com Inc. (NASDAQ: AMZN). J.C. Penney would like investors to think its rivals are a much smaller group of companies.

Another factor against a turnaround is that current CEO, Myron E. (Mike) Ullman III, has not had a bit of success improving the company’s fortunes, despite being CEO twice. Taken together, his tenures are a failure.

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There are very few, if any, examples of a large U.S. retailer completely falling apart and then making a miraculous recovery. Like all new CEOs, Ellison says he is optimistic — very. But optimism never made a turnaround. J.C. Penney is still too big in terms of expenses. It has cut most of its expenses, other than its store locations, completely to the bone. It will need better same-store sales than forecast to solve its problems. All that is left is those 1,000 stores, which is way too many.