Why Losing for a Quarter Means Little to J.C. Penney

New J.C. Penney (NYS: JCP) CEO Ron Johnson said, "While 2011 was a year of transition at J.C Penney, 2012 will be a year of transformation." I want to believe him.

J.C. Penney's traditional practice of giving high discounts has not inspired positive results for a while now. The company is making efforts to change that with its new turnaround strategy, which includes new management, revamped stores, and a new pricing method. And those look good to me.

Shifting away from losses
The retailer has been struggling for quite some time. In the most recent quarter, J.C. Penney fell to a loss of $87 million, with some of its loss attributable to the strategic changes. Much like peer Sears Holdings (NAS: SHLD) , J.C. Penney's stores have been billed as "not fun to shop at." Sears encountered a loss of $2.4 billion in the recent quarter.

The restructuring charges, related in part to management change and the consolidation of its supply chain, swung Penney to a loss of $0.41 a share compared to a profit of $1.13 per share in the year-ago period. If we exclude these charges, however, J.C. Penney would record a profit of $0.74 a share ahead of what analysts expected. So, things aren't as bad as they seem to be, and we should keep in mind the bigger picture: the future.

Meaningful improvements
The company, as of February, shifted to a simpler pricing method labeled as "fair and square," involving a three-tiered concept. The strategy entails:

  • Everyday low prices, which are about 40% lower than the prices on offer last year.

  • Sales on select products on a monthly basis.

  • Clearance proceedings occurring on both the first and third Fridays of every month.

Penney also has a new logo, a brand-new store format, and a new spokeswoman in renowned talk show host Ellen DeGeneres. The new stores will house several brands under one roof -- one of them being Martha Stewart (NYS: MSO) , for which J.C. Penney dished out $38.5 million in acquiring a 16.6% stake and penning a 10-year merchandising deal.

The company also debuted with five new commercials featuring Ellen DeGeneres during Sunday night's Oscars telecast. I found these ads brilliant, as they clearly reflect the transformation J.C. Penney is undergoing. In fact, one of the taglines says, "Stay tuned to see how we're changing." I sure am.

I like what J.C. Penney is doing, and think the company has the foundation for a great turnaround play. To see if it plays out profitably for investors, add the stock to your watchlist by clicking the links below. My Watchlist is a free service offered by The Fool to keep you abreast of all the news and events as they relate to your favorite companies.

At the time thisarticle was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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