PLANO (AP/CBSDFW.COM) – J.C. Penney’s board of directors has ousted CEO Ron Johnson after only 16 months on the job as a risky turnaround strategy backfired and led to massive losses and steep sales drops.
The department store chain said that it has rehired Johnson’s predecessor Mike Ullman, 66, who was CEO of the department store chain for seven years until November 2011.
Johnson came under pressure after his turnaround strategy failed to win over shoppers. His drastic changes included slashing the number of sales in favor of everyday low prices, bringing in hipper designer brands such as Betsy Johnson and remaking outdated stores.
As recently as last month, J.C. Penney’s Chief Financial Officer Ken Hannah pledged that neither he nor Johnson had plans to leave the company despite snowballing sales drops and stock prices. For the year, Penney amassed almost a billion dollars in losses and saw its revenue plunge nearly 25 percent.
Ullman spent seven years as Chairman and CEO of J.C. Penney prior to Johnson taking over the job in November 2011. His history with the company puts him in a position to “quickly analyze the situation J.C. Penney faces and take steps to improve the Company`s performance,” according to a statement released by the company.
Ullman is quoted as saying, “While J. C. Penney has faced a difficult period, its legacy as a leader in American retailing is an asset that can be built upon and leveraged. To that end, my plan is to immediately engage with the Company`s customers, team members, vendors and shareholders, to understand their needs, views and insights. With that knowledge, I will work with the leadership team and the Board to develop and clearly articulate a game plan to establish a foundation for future success.”
The announcement comes as a growing chorus of critics including a former Penney CEO, Allen Questrom, called for his resignation as they lost faith in an aggressive overhaul plan that included getting rid of most discounts in favor of everyday low prices to bringing in new brands.
The biggest blow came last week from his strongest supporter activist investor and board member Bill Ackman, who had pushed the board in the summer of 2011 to hire Johnson to shake up the dowdy image of the retailer. He reportedly told investors on Friday that Penney’s execution “has been something very close to a disaster.”
Still, some analysts were surprised that the board didn’t give the former Apple and Target executive until later this year to reverse the sales slide. Johnson was in the midst of rolling out shops devoted to brands like Joe Fresh and home furnishings designer Jonathan Adler. The new shops, which started opening last year, had been faring better than the rest of the store.
“I truly believed that he had until holiday 2013,” said Brian Sozzi, CEO and chief equities strategist Belus Capital Advisers. “Today’s announcement is an indictment of his strategy.”
Sozzi said he thinks that Ullman will only serve as an interim CEO and is there to “slow the pace of change.” He expects the Plano, Texas company’s board will hand off the job to another executive who may want to take the company private.
Under Johnson, 54, Penney ditched coupons and most of its sales events in favor of everyday low prices. It brought in hipper designer brands such as Betsy Johnson and updated 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. But since Johnson, who was the mastermind behind Apple’s profitable stores rolled out his plan, 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. Meanwhile, credit rating agencies downgraded the company deeper into junk status. On Monday, the stock closed at $15.87, down 50 percent since 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 without a sizeable stock award he got last year and no bonuses, according to a filing last week.
Meanwhile, in 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 CEO Steve Roth sits on Penney’s board.
During the fourth quarter that ended Feb. 2, Penney widened its loss 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. The company’s 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.
“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. The company’s board wasn’t willing to wait around after amassing such severe losses so quickly.
Johnson’s removal marks a dramatic fall for the executive who come to Penney with much fanfare. Virtually no one questioned Johnson’s savvy when it was announced in June 2011 that he was leaving his role as Apple Inc.’s senior vice president of retail to take over the top job at Penney, a chain that had gained a reputation in recent years of having boring stores and merchandise.
To the contrary, there were lofty expectations for the man who had made Apple’s stores hip places to shop and before that, pioneered Target Corp.’s successful “cheap chic” strategy by bringing such names as home furnishings designer Michael Graves.
But the honeymoon with Wall Street ended soon after customers didn’t respond favorably to the changes. Johnson revised his strategy several times in an attempt to bring back shoppers.
J.C. Penney shares dropped 42 cents, or 2.7 percent, to $15.45 in after-hours trading.
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