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May 17, 2012 5:18 PM

Business

Moving in on Penney's

In the ritualized warfare that is earnings season, J.C. Penney Co. Inc. chief executive officer Ron Johnson lost a battle in the first quarter, posting a steeper-than-expected loss of $163 million....

In the ritualized warfare that is earnings season, J.C. Penney Co. Inc. chief executive officer Ron Johnson lost a battle in the first quarter, posting a steeper-than-expected loss of $163 million.

It's not surprising the former Apple retail star is now getting some flack -- the most painful of which came in the form of the company's worst day in the stock market in more than 30 years. Something had to give. After the build up to and theatrics surrounding the unveiling of his transformation plan in January, people were bound to be disappointed once the gritty work of reinvention got under way.

Macy's Inc. is the immediate beneficiary of the transformation and is outperforming in malls that it shares with Penney's. Analysts want Macy's to be even more aggressive.

Take this exchange from the department store's quarterly conference call last week: 

Nomura Securities analyst Paul Lejuez: "So Karen, you never changed your marketing spend or focus once you heard officially what J.C. Penney was doing?"

Macy's chief financial officer Karen Hoguet: "That's correct."

Lejuez: "How come?"

Hoguet: "I'm sorry?"

Lejuez: "Why not? I'm just wondering why there hasn't been kind of a shift on the fly and maybe you smell the blood in the water, maybe go after them a little bit harder than you would have otherwise."

Hoguet: "I think we were going hard after them before."

Macy's does smell blood and no doubt they and others will be ready to make their move soon.

But just as the build up to Johnson's big reveal was overheated, the gleeful takedown has been overdone as well. Realistically, Johnson, who has the support of Penney's major shareholder, Bill Ackman, is giving himself a year.

"We expect 2013...one year later, will be the year when takeoff starts," Johnson said at a meeting with analysts in New York. "We won't have a single coupon to go up against, a single promotion; all we'll have is new products, new presentation, and a lot better understanding of our strategy. So we're going though one tough year."

The proof is ultimately going to be in the company's results and if that one year starts to become two and then three, Johnson's going to run out of rope.
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