KSS Kohls Corporation

As a part of its strategy to exit the outlet store business by the end of 2012, J. C. Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently sold 15 outlet stores to SB Capital Group, an associate of the Schottenstein family of companies, for an undisclosed amount, reported by Business Journal.

Columbus, Ohio-based SB Capital Group hinted that the stores acquired will undergo a complete makeover and will operate under a new banner, JC’s 5 Star Outlet. The transition to a new retail brand will take place in approximately 21 months, till then the stores will continue to operate as JCPenney Outlet Stores. The stores will continue to receive merchandise from J. C. Penney as of now.

What was impressive about the deal was the retention of all the existing 1,600 employees of the JCPenney Outlet Stores by the new retail entity, at a time when the nation is grappling with high unemployment, which is currently hovering around 9%.

SB Capital Group also notified that Glen Gammons, who headed the JCPenney Outlet Store Division in the last 11 years of his 40-year career in J. C. Penney, will now spearhead the retail chain, JC's 5 Star Outlet, as its CEO.

Earlier, this month, J. C. Penney entered into an asset buyout agreement with Liz Claiborne Inc. (LIZ). Per the deal, J. C. Penney will acquire the global rights to the Liz Claiborne portfolio of brands and the U.S. and Puerto Rico rights for Monet, a fashion jewelry brand, for $267.5 million. Management hinted that the deal will conclude within 30 days.

Currently, we have a long-term Neutral recommendation on the stock. However, J. C. Penney holds a Zacks #4 Rank that translates into a short-term ‘Sell’ rating, and reflects the company’s dismal September sales results. Comparable-store sales fell 0.6%, whereas net sales dropped 3.6% to $1,426 million.

Management now expects third-quarter 2011 earnings, excluding restructuring charges, in the range of 10 cents to 15 cents a share, and comps to remain flat with the prior-year period.

Earlier, management forecasted earnings between 15 cents and 20 cents a share, including restructuring charges of about 5 cents, and comparable store sales to increase in the range of 2% to 3%.

J.C. Penney, which competes with Macy’s Inc. (M) and Kohl’s Corporation (KSS), currently operates more than 1,100 department stores in the United States and Puerto Rico.

 
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