SHLDQ Sears Holdings Corporation (CE)

Marvin Ellison must help rejuvenate chain; department-store turnaround unfinished

By Suzanne Kapner and Sarah Nassauer 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 23, 2018).

J.C. Penney Co., struggling to reverse its decline, is losing its chief executive to Lowe's Co., another retailer trying to fix itself.

Marvin Ellison, who joined Penney in 2014 and became CEO the following year, shifted the department-store chain away from apparel toward appliances. Last year, he closed more than 100 stores and slashed jobs. But the company's sales have sputtered, and its once-iconic stature has diminished as losses have piled up.

Lowe's, meanwhile, has been searching for a new CEO to boost results at the home-improvement chain, which faces pressure from an activist investor as it labors to keep pace with the rapid revenue gains at Home Depot Inc.

"This is arguably the most challenging and competitive retail market that we've seen in over 50 years," Mr. Ellison told analysts last week on a conference to discuss Penney's quarterly earnings. He previously worked at Home Depot. and Target Corp.

Many traditional chains like Penney continue to struggle as spending moves to the web and Amazon.com Inc. squeezes retailing profits. Toys 'R' Us Inc. is liquidating all its U.S. stores and Sears Holdings Corp. continues to shrink. Nine West and Claire's Stores filed for bankruptcy protection in recent months.

The strong U.S. economy and low unemployment are helping some big chains that have managed to close weaker locations, invest in store improvements and capture more online orders. Last week, Walmart Inc. and Macy's Inc. reported rising same-store sales for the latest quarter.

On Tuesday, Lowe's said it had hired Mr. Ellison and he would join the seller of paint and plywood on July 2. Penney shares fell 6% to $2.35 while Lowe's shares slipped 1.9% to $85.75.

"The turnaround program that Ellison put in place at JCP has partly delivered but is still far from complete," said Neil Saunders, managing director of GlobalData Retail, a consulting firm. His "exit will also raise speculation that he is not particularly optimistic about the future prospects of JCP," Mr. Saunders said.

Penney "is in a much better position today than it was four years ago," a company spokeswoman said, noting that during Mr. Ellison's tenure the company strengthened its balance sheet by retiring $1.4 billion in debt.

Mr. Ellison, 53 years old, is jumping to a much bigger company. Lowe's takes in more than five times as much revenue as Penney, and its market capitalization of roughly $73 billion compares with less than $1 billion for the department-store chain.

Penney, which is based in Plano, Texas, said Tuesday it was launching a search for a new CEO. It created an office of the chairman consisting of the chief financial officer, the chief information officer and other executives who will manage the day-to-day responsibilities until a successor is found. Its board elected lead director Ron Tysoe chairman, replacing Mr. Ellison.

Mr. Ellison joined Penney when it was in crisis following former CEO Ron Johnson's failed experiment to revamp the 116-year-old chain. While Mr. Ellison stabilized sales, the company remains challenged, which could complicate efforts to find a new CEO. It is carrying a hefty debt load and is unprofitable. It lost $78 million in the most recent quarter, compared with a $187 million loss a year earlier.

Penney's same-store sales for the three months to May 5 rose a scant 0.2%, short of the company's expectations and strong results from rivals such as Macy's.

Some analysts had become disillusioned with Mr. Ellison's plan for turning around Penney, noting he was shifting into lower margin categories like appliances without fixing the chain's core apparel business.

"This marriage needed to come to an end sooner rather than later," Charles Grom, an analyst with Gordon Haskett Research Advisors, wrote in a note to clients.

Lowe's said in March that its current CEO, Robert Niblock, would retire after 13 years in the top role. That announcement came one week after three new directors joined the company's board following criticisms from activist investor D.E. Shaw & Co. that Lowe's had underperformed Home Depot in recent years.

Lowe's was set to release its first-quarter results Wednesday morning. In February, the Mooresville, N.C.-based chain reported falling sales and lower-than-expected earnings for its fiscal fourth quarter.

The retailer agreed to pay Mr. Ellison a base salary of $1.45 million and a target bonus of $2.9 million He will also receive a signing bonus of about $6 million in stock grants and options that will potentially pay out over the next three years. Mr. Ellison earned the same base salary at Penney.

Before joining Penney, Mr. Ellison spent a dozen years at Home Depot. He rose through the ranks, ending up in the job of executive vice president in charge of the do-it-yourself chain's roughly 2,000 U.S. stores. He was the first African-American to join its senior ranks and left for Penney after missing out on the top job at Home Depot.

Mr. Ellison is expected to draw on his Home Depot playbook to improve Lowe's customer service, online presence and professional business, said people familiar with the matter.

At Home Depot, for example, Mr. Ellison had sales associates wear bright orange vests to make it easy for shoppers to differentiate them from employees doing other tasks and decided employees shouldn't stock shelves during the busiest hours, the people said.

He grew up in a segregated rural Tennessee town with four brothers and three sisters. His parents were sharecroppers before joining together with their children in the 1970s to form the Ellison Family Gospel group, which recorded four albums. He graduated from the University of Memphis and got his M.B.A. from Emory University.

On Tuesday, Lowe's also appointed Richard Dreiling, a director since 2012, as chairman, starting in July. Mr. Dreiling was previously chief executive of discount chain Dollar General.

--Cara Lombardo contributed to this article.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

May 23, 2018 02:47 ET (06:47 GMT)

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