J.C Penney's stock tumbles after key exec's exit
NEW YORK—J.C. Penney's shares are tumbling a day after the department store chain announced the sudden departure of Michael Francis, a former top Target executive brought in last October to help redefine Penney's brand.
Penney's terse statement Monday gave no reason for Francis's exit. As president, he was responsible for marketing a new pricing plan that the company says replaced hundreds of sales events per year with lower prices overall as of Feb. 1. Francis also oversaw merchandising and product development and played a big role in signing up new brands as part of larger plan to transform the company under its new CEO, Ron Johnson.
The departure is the latest sign of tumult at J.C. Penney, which last month reported a bigger loss than expected and a 20 percent drop in revenue as shoppers fled in confusion over the new pricing strategy, which Johnson spearheaded.
During presentations at a recent industry conference this month and following the first-quarter earnings report, Johnson continued to back his pricing strategy, saying the problem was that Penney's marketing didn't clearly spell it out.
"Our marketing, while it is gaining a lot of mind share, is not doing the work it (must) to communicate our pricing strategy and to drive our traffic," Johnson told investors last month.
With Francis's departure, Johnson, who came to Penney from Apple Inc., will assume direct responsibility for and oversight of marketing and merchandising.
Since the abysmal first-quarter earnings report, Penney has been changing its advertising and marketing to better explain the three-tiered pricing strategy, which entails everyday prices 40 percent lower than a year ago; deeper month-long reductions on selected items; and clearance sales the first and third Friday of each month, called "Best Price Fridays."
Penney also has been backpedaling. It's adding five more "Best Price Fridays" throughout the year, including one before Memorial Day weekend, according to Deutsche Bank analyst Charles Grom. And it is resurrecting the word "sale" in its advertising; it was taboo under Johnson's original plan.
Analysts were surprised by Francis's exit, even though critics said the quirky, whimsical style that the former Target Corp. chief marketer injected into Penney's advertising didn't clarify its new pricing plan.
"The departure of Francis does not help build confidence that the grand turnaround plan envisioned in (January) will materialize," analyst Paul Lejuez of Nomura Securities International told clients in a note Tuesday. "While Ron Johnson is the key architect of the plan, and we believe he presented many good ideas, the early missteps have made (Penney) much more of a `show me' story, rather than one where we can give them the benefit of the doubt."
Lejuez said the change is likely to open questions for Penney's suppliers. Just last month, Francis joined Johnson on stage to announce that a slew of designers like Cynthia Rowley and Vivienne Tam are launching new, affordable collections for Penney, starting this fall.
By midday Tuesday, Penney's shares were down $2.46, or 10.1 percent, trading at $21.88, and had touched their lowest point in nearly two years.
The shares soared last winter after Johnson laid out the new pricing strategy, peaking at $43.13 on Feb. 9. They have since lost almost half their value.