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Posted on 4 June 2012 | 4,370 views

J.C. Penny Stock Crashes to its Stock Market Crash of Oct 1987 Price

Wall Street doesn’t seem to like J.C. Penney’s new everyday low pricing any better than Main Street does.

The department store chain’s stock plunged nearly 20 percent on Wednesday May 16, 2012 — the biggest decline since the 1987 Market Crash. The drop comes a day after Penney said it would no longer pay out a dividend and blamed its first-quarter loss on poor reception by shoppers to its strategy of getting rid of hundreds of sales each year in favor of predictable low prices every day.

The pricing plan, which was rolled out on Feb. 1, aims to stop the cycle of heavy discounting and discourage customers from waiting for sales. But the reaction by investors and shoppers shows how difficult it will be for Penney to change the mindset of consumers who have been conditioned to expect blockbuster deals from Penney during the economic downturn.

It also puts more pressure on new CEO Ron Johnson, a former Apple (Stock Symbol: AAPL) executive who is trying to transform Penney from a has-been to a retail darling. The same investors that initially supported the man who masterminded both Apple’s successful retail stores and Target’s (Ticker Symbol: TGT) cheap chic strategy prior to that, now seem to be losing confidence in Johnson’s plan.

Then, J.C. Penney Co. (Stock Symbol: JCP) reported that it lost $163 million, or 75 cents a share, in the three months ended April 28, compared with a profit of $64 million, or 28 cents a share, in the year-ago period.

Revenue dropped 20 per cent to $3.15 billion for the quarter as customer traffic slipped 10 per cent. Meanwhile, revenue at stores opened at least a year — a figure used to measure a retailer’s health — was down 18.9 per cent. That’s a much steeper fall than the 11.4 per cent drop Wall Street was expecting.

Penney, based in Plano, Texas, also said it would discontinue its 20 cent per share quarterly dividend so that it could reap cash savings of $175 million to fund its transformation.

Investors, who had sent Penney shares soaring 24 per cent to about $43 after Johnson announced the pricing plan in late January, had already pushed Penney’s shares down to around $34 since after it was rolled out in stores. On Wednesday, a day after Penney reported the disappointing results, its stock fell 19.7 per cent, or $6.57 to close at $26.75 — the largest percentage drop since October 19, 1987 when shares slid 19.2 per cent to $19.50 per share.

J.C. Penny stock has now fallen 43% from it 52 week high.

Some money managers could see this as a buying opportunity because the Penney’s shares are cheaper now. The company’s 20 percent drop in sales at a time when many other retailers have enjoyed better results is a red flag though.

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