A Penney Saved

A deft turnaround buys time, but what's in store long-term for the venerable retailer?

Tim Reason is a senior writer at CFO.

Or Your Money Back

J.C. Penney’s post-Eckerd share buyback is another fashion in the slow-growth department-store segment. Sears, with more cash on hand than it knows what to do with, still has $500 million left over from the sale of its private-label credit card, money it plans to return to shareholders. Even Target, which effectively exited the slow-growth segment by shedding its Mervyn’s and Marshall Field’s department stores, followed up with a $3 billion buyback program. Federated, which passed on the chance to buy those stores from Target, has spent $687 million on buybacks, with $880 million still authorized. “We continue to view our stock-buyback program as a good way of returning value to our shareholders,” Federated CFO Karen Hoguet told analysts in August. (May Department Stores, which bought Fields and nine of the Mervyn’s, is the exception — it paid $3.24 billion in cash.)

Even without cash on hand from an asset sale, specialty clothier Limited Brands announced a $2 billion buyback in October — a move Gimme Credit’s Carol Levenson criticizes for being partly funded by borrowing. “Limited’s headstrong plunge into shareholder enhancement [comes] at the same time that its results have become increasingly unpredictable,” she says. And, she later pointed out in a tartly worded research note, the move “hasn’t exactly set the stock on fire.” — T.R.

Shelf-to-Shelf Combat

A crowded field, dwarfed by Wal-Mart.

Department Stores 2003*
Revenues
($ billions)
Debt/
Capital Ratio (%)
Number of Stores**
Sears*** $41.1 39.7% 2,300
J.C. Penney 17.8 43.5 1,020
Federated
Department Stores
15.3 31.2 450
Kohl’s 10.3 19.5 637
Dillard’s 7.9 42.1 328
Saks 6.5 32.6 393
Nordstrom 6.1 49.5 180
Neiman-Marcus**** $3.5 18.8% 51
Discount Stores
Wal-Mart 258.7 30.8 5,191
Target $48.2 48.0% 1,313
* Fiscal year ending 1/04, except as noted.
** Total U.S. and international as of 10/04.
*** Fiscal year ending 12/03.
**** Fiscal year ending 7/04.
Sources: Standard & Poor’s; company reports

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