Penney loses faith in CEO

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.

In a statement issued late Monday, the department store chain said it rehired Johnson’s predecessor Mike Ullman, 66, who was CEO of the department store chain for seven years until November 2011.

The announcement comes as a growing chorus of critics, including former Penney CEO Allen Questrom, called for Johnson’s resignation as they lost faith in his turnaround strategy.

Penney reported dismal fourth-quarter results in late February that capped the first full year of a transformation plan where Penney amassed nearly a billion dollars in losses and its revenue tumbled almost 25 percent to $12.98 billion.

Under Johnson, 54, Penney embarked upon a strategy that included ditching coupons and most of its sales events in favor of everyday low prices, bringing in hipper designer brands, such as Betsy Johnson, and remaking outdated stores by installing specialty shops devoted to brands such as Joe Fresh and Levi’s to replace rows of clothing racks. Johnson’s goal was to reinvent Penney’s business into a hip place to shop in a bid to attract younger, wealthier shoppers. But since Johnson, who was the mastermind behind Apple’s 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.

In a vote of confidence, investors drove Penney’s shares 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.

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 and 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 Jan. 28, 2012. The company’s revenue fell 25 percent, to $12.98 billion, from the previous year’s $17.26 billion.

Penney shares, which had originally risen in after-hours trading on media reports that Johnson had been ousted, reversed course, falling $1.54, or 9.7 percent, to $14.33.