Even Good News Can't Send J.C. Penney Higher


Ordinarily, you'd expect a legal victory to give a company's stock at least a short-term boost. But for J.C. Penney , all news lately has seemed to be bad news, and the stock has fallen 2.8% as of 2:05 p.m. EDT.

Winning a legal battle...
Today's news involves J.C. Penney's lawsuit with Macy's , in which a judge dismissed Macy's claim that J.C. Penney engaged in unfair competition by selling products from Martha Stewart Living in store-within-store settings. The judge based his decision on J.C. Penney's past experience in creating similar store-within-store concepts based on other brands.

Yet the dismissal of the claim doesn't end J.C. Penney's legal controversy, as a claim of tortious interference in Macy's contract with Martha Stewart Living still remains outstanding. Moreover, Macy's is seeking an injunction against J.C. Penney to keep it from selling various Martha Stewart items, and Macy's has promised to appeal the court's decision if it loses.

...but losing the business war?
Despite its small legal victory, J.C. Penney still has big challenges ahead of it. Reports earlier today said that retailer had retained Blackstone Group to help it raise $1 billion. Given the massive expenditures the retailer has made as part of its ongoing restructuring, the cash will help bolster J.C. Penney's operating capital and address its short-term capital needs.

Whether prospective capital-infusions come in the form of bank loans or additional equity, it's highly likely that existing shareholders will end up seeing their stakes in the company diluted. Given how low the share price is, now is clearly not the ideal time for J.C. Penney to be tapping the capital markets for cash. Yet as painful as it is, returning CEO Mike Ullman has little chance of successfully rescuing the retailer if he doesn't have the financial capacity to implement changes in strategy going forward.

A long road ahead
At this point, it's hard to imagine what could make J.C. Penney shares rise. An outright dismissal of Macy's lawsuit might be sufficient, especially if it eliminates the possibility of an injunction. Yet even with Martha Stewart's help, J.C. Penney's anticipated about-face on its discounting and coupon model is going to leave customers feeling whipsawed. If that happens, investors may never get the good news they've been waiting for.

J.C. Penney's stock cratered under Ron Johnson's leadership, but will Ullman be able to do any better? Stay up to date on whether J.C. Penney is a buy today by accepting this invitation to claim a copy of The Motley Fool's must-read report on the company. Learn everything you need to know about the retailer's turnaround odds -- or lack thereof. Simply click here now for instant access.

The article Even Good News Can't Send J.C. Penney Higher originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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