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J.C. Penney to close 5 stores, adds 2 board members

January 24, 2011|By Andria Cheng

Reporting from New York — J.C. Penney Co. plans to close five underperforming department stores as part of a series of restructuring moves that will affect 3,900 jobs, the retailer said Monday. It also named William Ackman of Pershing Square Capital Management and Steven Roth of Vornado Realty Trust to its board.

In California, J.C. Penney will shut a furniture outlet in Rancho Cucamonga and a custom decorating fabrication facility in Sacramento.

The company also plans to shut 19 catalog outlets over the next two years as it winds down its legacy catalog business to focus on online sales. The company said it still plans to send direct mail and other print media.

At its peak, the catalog business generated several billion dollars in sales but has declined fast over the last five years, falling to $750 million in 2010, spokeswoman Darcie Brossart said.

"There are certain parts of our business that weren't meeting our performance standards and, as a result, were causing unnecessary distractions," Chief Executive Mike Ullman said, adding that the company will outline initiatives that target more sales and cost-cutting opportunities in February.

The retailer said it agreed to name activist investor Ackman of Pershing Square and Roth of Vornado Realty Trust to its board, expanding the number of directors to 13 from 11.

Pershing and Vornado rank among the Plano, Texas, company's largest shareholders. Last October, J.C. Penney adopted a shareholder-rights plan, or poison pill, after Pershing and Vornado disclosed stakes of 16.5% and 9.9%, respectively, in the retailer.

J.C. Penney's latest announcement signaled that there won't be a proxy fight, analysts said.

"We view these announcements as an indication that [J.C. Penney] is working collaboratively with its largest shareholders, and are pleased by the company's efforts to manage costs and allocate resources toward strategies that will best drive [its] top and bottom line," said analyst Deborah Weinswig of Citi Investment Research.

Ackman, who has invested in such retailers as Target Corp., Sears Holdings Corp. and McDonald's Corp., will focus on improving "operational efficiency" at J.C. Penney, where a measure of its operating profit margin of 4.6% trailed that of 10.6% for rival Kohl's Corp. and 7.6% for Macy's Inc., Weinswig said.

Ackman is known for pushing for changes at companies in which he invests. He lost a proxy fight against Target in 2009, even after successfully pressing for the discounter to sell part of its credit-card portfolio.

His firm Pershing, which has also invested in struggling bookstore operator Borders Group Inc., has said it's willing to finance a merger between Borders and its larger rival Barnes & Noble Inc.

Roth, chairman of Vornado's board, has invested in retailers including Sears and Toys R Us, and he serves as chief executive of Alexander's Inc., a real estate investment trust investing in New York properties.

Shares of J.C. Penney rose $2.18, or 7.2%, to $32.52.

Cheng writes for MarketWatch.com/McClatchy.

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