Johnson’s future at Penny became uncertain after the department store retailer reported dismal fourth-quarter results in late February that capped the first full year of a transformation plan gone wrong. Penney amassed nearly a billion dollars in losses and its revenue tumbled almost 25 percent, from the previous year, to $12.98 billion.
Under Johnson, 54, Penney ditched coupons and most of its sales events in favor of everyday low prices. It’s bringing in hipper designer brands such as Betsey Johnson and updating stores by installing specialty shops devoted to brands such as Levi’s to replace rows of clothing racks. Johnson’s goal was to reinvent Penney’s business into a trendy place to shop in a bid to attract younger, wealthier shoppers. Johnson, the mastermind behind Apple’s profitable stores, rolled out his plan and it turned off shoppers who were used to heavy discounting. Once-loyal customers have strayed from the 1,100-store chain. It hasn’t been able to attract new shoppers to replace them.
Initially, Wall Street supported Johnson’s ideas. In a vote of confidence, investors drove Penney’s stock up 24 percent to $43 after Johnson announced his vision in late January 2012. But as Johnson’s plans unraveled, Penney’s stock lost more than 60 percent of its value. Credit rating agencies downgraded the company deeper into junk status. On Monday, the stock closed down about 50 percent from when Johnson took the helm.
In one of the biggest signs of the board’s disapproval of Johnson’s performance, Johnson saw his 2012 compensation package plummet nearly 97 percent to about $1.9 million, according to an SEC filing last week. He didn’t get any stock or option awards, or a bonus. In 2011, he had received a stock award worth $52.7 million on the day it was granted. The award was given to Johnson after he was named CEO and made a $50 million personal investment in the company.
In yet another blow to Johnson’s turnaround strategy, Vornado Realty Trust, one of Penney’s biggest shareholders, sold more than 40 percent of its stake in the company last month. The company’s chairman and CEO, Steve Roth sits on Penney’s board.
A court battle with department store Macy’s Inc. over a partnership with Martha Stewart also has raised questions about Johnson’s judgment. Macy's, which has had long-term exclusive rights to the Martha Stewart brand for products such as bedding and bath items, is trying to block Penney from opening Martha Stewart mini-shops, planned for this spring. Macy’s contends that Penney’s deal with Stewart infringes on its own deal with the home maven. If Penney loses, it will have to take a big loss on the products that it ordered from Martha Stewart Living.
During the fourth quarter that ended Feb. 2, Penney’s loss widened to $552 million, or $2.51 per share, up from a loss of $87 million, or 41 cents per share a year ago.
Total revenue dropped 28.4 percent to $3.88 billion.
Penney’s results for the full year were even more staggering. For the fiscal year, Penney lost $985 million, or $4.49 per share, compared with a loss of $152 million, or 70 cents per share, in the year ended January 28, 2012. Revenue fell 25 percent, to $12.98 billion, from the previous year’s $17.26 billion.
While acknowledging that Penney made some mistakes during the fourth-quarter conference call with investors, Johnson said Penney would start offering sales in stores every week — about 100 of the 600 or so the chain offered each year prior to his turnaround plan. And it would bring back coupons.
Critics have said that one of Johnson’s greatest missteps was that he didn’t test the pricing plan with shoppers before rolling out the strategy. He argued that testing would have been impossible because the company needed quick results and that if he hadn’t taken a strong stance against discounting, he would not have been able to get new stylish brands on board.
‘‘Experience is making mistakes and learning from them, and I have learned a lot,’’ Johnson said at the time. ‘‘We worked really hard and tried many things to help the customer understand that she could shop any time on her terms. But we learned she prefers a sale. At times, she loves a coupon.’’
During his tenure, Johnson had spoken of being around for the long-haul and referred to his plan as a multiyear strategy. His plans were only partially realized. Shops for Joe Fresh, featuring brightly colored clothes were launched last month. A new home area sporting names like Jonathan Adler and Michael Graves will be launching this spring. Other brands were expected to be unveiled in coming years as the stores transformed into a collection of up to 100 mini-shops.Continued...