J.C. Penney's stock finished Monday's trading down 4.6% to $1.68 per share. Shares are down 47% year to date.
Despite a robust retail environment bolstered by a booming economy, J.C. Penney is struggling to keep its head above water. Sears' bankruptcy has spooked the market and many wonder if the Plano, Texas-based retailer might be next.
Death by Debt
As was the case with Sears, a burgeoning debt burden amid its stock's slide has left J.C. Penney saddled with a level of debt significantly greater than the value of the company itself.
The company currently carries $4.2 billion in debt, with a total company valuation of only $554 million.
Jan Rogers Kniffen, president of retail consultancy J. Rogers Kniffen Worldwide Enterprises, told Real Money in a recent interview that J.C. Penney is the likeliest company to follow in Sears' path precisely because of this debt burden.
"The debt load is what kills these companies," Kniffen said. "It keeps the company from reinvesting in the business when they really need to be."
Its charts point to a downside price target of $1.04.
Real Money's Bruce Kamich suggested that shares will need to run up to $3.12 for a recovery to be in order, meaning a 100% return would be required for a rally.
Shorts are preparing their bets on just that basis.
According to Short Squeeze, a data platform covering short interest movements, many already have taken this option, with 133.7 million J.C. Penney shares sold short in total. The interest represents 46.8% of the retailer's float.
A CEO With a Proven Track Record
Analysts say Soltau's experience is solid and directly applicable to the challenges she will face at Penney.
"She is joining the company when the strategy is in transition," Piper Jaffray Senior Research Analyst Erinn Murphy wrote in a recent note. "We remain sidelined tied to our longer-term view on department store retailing and given our belief that inventory at JCP is still in process of being right-sized."
Soltau comes to J.C. Penney from Jo-Ann Stores, a privately-held, Ohio-based specialty retailer of crafts and fabrics, where she has served as CEO since March of 2015.
"Jill stood out from the start among an incredibly strong slate of candidates," Paul Brown, the company's board director and chairman of the search committee said in a statement. "As we looked for the right person to lead this iconic company, we wanted someone with rich apparel and merchandising experience and found Jill to be an ideal fit."
Her vision in marketing and e-commerce was noted as particularly important for the retailer as it seeks to modernize and spark a turnaround.
"Her depth of experience in product development, marketing, e-commerce and store operations have been an important basis for the turnaround work she spearheaded at prior companies," Brown explained.
While at Jo-Ann, Soltau's branding efforts changed the company's name, color scheme, and logo and furthered e-commerce measures to unlock value for the company stuck a generation behind. J.C. Penney shareholders will certainly hope that she can do the same for the aging retailer as it looks to capture interest from younger customers who have shunned their stores.
Her efforts in digital will be paramount as well, given the company's consistent losses to the "Amazon (AMZN) effect." Luckily, she does have experience in this category.
"We were surprised to learn that (Jo-Ann) has some unique digital/mobile capabilities," Murphy explained. "In fact, Jo-Ann's App is ranked No. 19 in the Shopping category with a 5-star rating based on 175,000 reviews," according to Piper Jaffray research.
Soltau's stewardship through this transition to attract a larger client base will be vital to J.C. Penney.
Make or Break
Despite Monday's stock slide, a number of analysts are waiting to see the results from the upcoming holiday season.
Twelve of the 13 analysts covering the stock are maintaining their hold rating.
In order to prove it can thrive under its new management, the holiday season will be pivotal for J.C. Penney.
"Holiday season is absolutely going to be important," Bill Friend, vice president of Fluent Commerce, a retail platform company told Real Money. "The season last year was tremendous, so it should bode well."