J.C. Penney (JCP) announced a successor to Chairman and CEO Mike Ullman, Home Depot's (HD) executive vice president of stores Marvin Ellison. With Ellison passed over for the top job at Home Depot, his departure was imminent given his extensive retail experience and time spent at Home Depot.
Right off the bat, I think the news sheds light on this:
- J.C. Penney was actually in a position, financially and operationally, to continue to attract another top talent. Ullman brought back his veteran team in 2013 to right the ship, along with roping in former Saks CEO Stephen Sadove to sit on the board.
- J.C. Penney wouldn't attract talent if there wasn't a clear path to staying viable, and doing well, in the future.
- For every top retail talent J.C. Penney, Macy's (M), Gap (GPS), Target (TGT) lure in with better operational stories to sell in meetings, it's a turning of the knife in Sears Holdings (SHLD).
- Ellison will get a taste of a department store holiday season as he begins on Nov. 1 as president and CEO-designee. I like the on-the-job training aspect put forth by Ullman, who isn't stepping aside fully from day-to-day operations until August 2015.
Having said that, J.C. Penney shares have been destroyed since CFO Ed Record began talking at analyst day last week. The main fuel underneath J.C. Penney's burning stock price was the cautious comments on third quarter same-store sales guidance and the general lack of oomph in sales to near quarter end.
But there was another component. CEO Mike Ullman dropped the ball on updating the market on a succession plan, almost seeming at ease with potentially being the CEO well into 2017. J.C. Penney thought, wrongly, that no update on succession was OK seeing as the man who saved the company from death was to be at the helm. With it laying out a three-year vision, from upgraded store environments to actual free cash flow, J.C. Penney could have saved a great deal of investor headaches by giving a timetable on the CEO announcement. The news today suggests the CEO search was nearing completion or was outright done and likely to be shared on the third-quarter earnings release in November.
But onto the man succeeding Mike Ullman, Marvin Ellison. Having had coverage on Home Depot for eight years, I can tell you Ellison is very strong operationally. If Ullman gets credit for saving J.C. Penney, the combination of Frank Blake and Ellison (and Craig Menear) arguably deserve credit for reinvigorating Home Depot.
Here are a few things launched under Ellison.
- DropCam section in the store.
- Expanded appliance section.
- Improved customer service (more workers during peak hours and retired tradesman).
- Ship from store, buy online, pick up in store is increasingly integrating Home Depot Online to Home Depot Stores.
- More pro services launched (by "pro" it means those on homebuilder job sites, etc.).
While some may point to Ellison not being an apparel guy, remember that outgoing Gap CEO Glenn Murphy came from a Canadian drugstore outfit in 2007. With operational execution critical at this point in J.C. Penney's lifespan (new shopping environments have to be launched, same-day delivery likely in play in the future, the highly-leveraged balance sheet has to be managed), Ellison's operational background is needed. Let the veteran merchants around him do the apparel and sneaker buys. The market is right in sending the stock higher on the news.
At the time of publication, Sozzi had no positions in any of the securities mentioned.