Conference Calls in the Twilight Zone

 | Feb 28, 2013 | 7:26 AM EST
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The ratio of reality to fiction got some real outliers yesterday, the conference calls after earnings from J.C. Penney (JCP) and Groupon (GRPN).

These two conference calls, after some not-so-hot quarters, had the least grounding with how things are really unfolding at these companies that I have heard so far in 2013.

Groupon's amazing. There was no sense whatsoever -- at least in the call -- that things are slowing and that international is a real Achilles heel. When you have a giant guide down, you lead with it, you don't bury it. Your credibility is shot the moment you DON'T bring it up and then say how you will address the mistakes and the problems. You are just off the rails when you say a terrible quarter is a great one and a hideous outlook bodes well for the future. Both occurred in the Groupon call and it was a head scratcher, to say the least. 

J.C. Penney leads with the best things that are happening instead of saying how it can survive with comps down 30%. As Michael Exstein from Credit Suisse said in his Sell rating summary, this was a "beyond worst case scenario quarterly result."

I think that the salient issue is not if the turn is working, and CEO Ron Johnson insists that it is, but how it can still work and why it is not having an impact on the comp store numbers. I tire of hearing how this product line or that product line can make a difference and instead I want to know how the company could turn off so many of its traditional customers and why they don't care about the new assortments.

Plus, let's be honest, if Johnson wants to succeed he has to change the name of the enterprise. Yes, the whole enterprise. Scrap the name J.C. Penney. I am not kidding. First, the old customers seem to have turned against Penney even as the turn is going on. So you have lost them already. Second, the new lines of clothes and soon the new lines of home goods are dead on arrival because they are actually sold at J.C. Penney, where people seem to know, instinctively, not to shop. For example, if you buy one of the new Joe Fresh selections, a very attractive line of clothes at J.C. Penney, and tell someone who compliments you and asks you where you got that dress, and you answer "I got it at J.C. Penney," that person will say, "oh." And then they will not even think of going because "who shops at J.C. Penney?"

You change the name maybe people will be confused and go.

Penney's in the same position GM (GM) was against Toyota and Honda many years ago. GM thought it could either reinvent and lose its core older customers or it could just stay the way it was, keep that old customer base and let the Japanese have the newer consumer. In reality that was a false dichotomy and GM didn't need to side with one generation. It just needed to be creative and satisfy both.

Johnson has simply failed to figure out a way to do that. And that's why it's probably time for someone else to try before it is too late because I have never seen any company come back from down 30%-plus comps. He has to own up to how he can and why the company is viable before he talks about how he is succeeding when he isn't.  

I love conference calls. I love managements who start with "OK, numbers bad, here's why numbers bad, here's how we will fix it."

I do not like managements that start out talking about how good the numbers are when we all know they are terrible and then proceed to tell you how things will just get better and better when they are actually getting worse and worse. Those are the managers of stocks I want to sell. Those are the managements, alas, who need to be replaced because they just don't get it and probably never will.

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