(Reuters) - Myron Ullman’s return to the helm at J.C. Penney Co Inc (JCP.N) unnerved investors on Tuesday, as analysts said his experience was welcome but was not a cure-all for the retailer’s sliding sales and dwindling cash.
Shares were down 7 percent to $14.75 in early trading. They rose almost 11 percent late Monday after Penney confirmed it had ousted Ron Johnson as chief executive, but the stock slid when the company said Ullman was back.
Ullman was CEO from 2004 to 2011, before being replaced by Johnson, whose decision to remove coupons and discounts in favor of it called everyday low pricing last year, which led to a 25 percent drop in sales in 2012.
As much as many on Wall Street were clamoring for Johnson’s ouster, analysts warned that Ullman’s return was not a solution as he tries to win back shoppers, mollify worried vendors and decide whether to forge ahead with some aspects of Johnson’s strategy.
“Ullman makes sense in the interim, given the urgent cash situation. Ullman is also a known partner to the vendors,” UBS analyst Michael Binetti wrote in a note on Tuesday.
In addition to the pricing strategy, Johnson’s plan to remake Penney included the roll-out of branded boutiques within stores - an expensive proposition that many observers expect Ullman to scale back to conserve cash since store remodeling eats up cash.
Under Johnson, Penney opened shops for fashion brand Joe Fresh and last week launched the first two shops in its revamped home section, long Penney’s weakest business.
But Binetti and others questioned the popularity of the boutiques. Barclays Capital credit analyst Hale Holden said after a visit to a New York City store last weekend that the more traditional offerings were attracting the bulk of the traffic.
Ullman’s first task will be to win back shoppers alienated by Penney’s removal of coupons and the move to trendier items. Analysts warned that Penney would have to spend heavily on advertising and couponing to win back shoppers.
“Ullman inherits a customer base that, in our view, feels it has been betrayed, and he will be virtually powerless to prevent JCP from burning a substantial amount of cash in 2013,” PiperJaffray analyst Alex Fuhrman said. He expects Penney to use up to $1 billion in cash this year.
Wall Street hailed Johnson in 2011, saying Penney was a stodgy old retailer in need of a makeover.
His biggest contribution, analysts said, will be his longstanding relationships with vendors, which will need to be reassured. That will potentially win Penney more time while it rights itself.
“Our best guess is given JCP’s scale and relative importance combined with Mr. Ullman’s historical relationship with the company’s vendors probably creates a pause,” Barclays’ Holden said in a note.
Reporting by Phil Wahba in New York; Editing by Jeffrey Benkoe