Shares of the troubled J.C. Penney Co. Inc. jumped as much as 10.9 percent today as analysts weighed in on the introduction of Joe Fresh and how the retailer would fare as a real estate company that rented space to other brands.
The stock closed up 6.2 percent to $16.44 even as Wall Street wavered and debt troubles in Cyprus threatened both depositors in the tiny nation’s banks and euro zone stability. The Dow Jones Industrial Average was down 0.2, or 22.78 points, to 14,491.33 and the S&P 500 Retailing Industry Group also fell 0.2 percent, or 1.44 points, to 718.44.
Chief executive officer Ron Johnson’s reinvention of Penney’s has captured the imagination of the market for more than a year — first raising expectations after a flashy presentation and then drawing criticism as sales fell sharply.
Johnson’s introduction of Joe Fresh on Friday — his most-recent effort to bring in new brands and set them up in their own shops — was met with approval on Wall Street.
Oppenheimer analyst Brian Nagel said the new Joe Fresh shops looked good at stores in New York and New Jersey this weekend.
“The launch of Joe Fresh women’s appears to have occurred on schedule,” Nagel said. “Shop-in-shops are open and airy and brightly lit. Merchandise looks compelling and well priced. Traffic is difficult to measure, but customers do seem to be reacting positively to the Joe Fresh launch. Any significant consumer adoption is likely to take time. We remain optimistic that over time the repositioning of JCP should prove successful. A turn still seems a ways off, and near-term risks for the chain abound.”
Not everyone is so optimistic.
Omar Saad, an analyst at International Strategy & Investment Group, wondered in a research note if it was time for Penney’s to think about Plan B.
“While the company seems to be headed toward serious financial and liquidity issues should sales continue to shrink at a 20-30 percent run rate, and the market is increasingly pricing in just such a scenario, investors may be overlooking an intriguing alternate outcome,” Saad said.
Saad said the retailer’s stock could be worth $46 a share, or nearly three times its current value, if the retailer would spin off its 300 top stores into a real estate company that would lease space to other brands. Under this scenario, the firm’s other 800 stores would operate as a discount department store.
The analyst said Penney’s average cost per square foot of retail space is $4 and that the company could turn around and lease that space for $40 to a host of brands, including T.J. Maxx, Calvin Klein and Apple.
Saad said Penney’s would burn through $100 million cash monthly with flat comparable-store sales, a rate that would drain the company’s reserves and credit in 31 months.
Outside of Penney’s, Wall Street seem mostly focused on Cyprus.
Plans by the European Union and the International Monetary Fund to bail out the small country have met with fear and fury among citizens who would have to pay a one-off levy on their bank accounts to fund part of the rescue.
Banks in the region have been closed until Thursday following a major spate of withdrawals and fears of a run on financial institutions.
The Cypriot parliament held an emergency session today but a vote on the terms of the bailout was postponed until Tuesday as lawmakers debate the terms of the deal, worth 10 billion euro, or $13.07 billion.
Milan’s FTSE MIB sank 0.9 percent to 15,924.13 while London’s FTSE 100 and Paris’ CAC 40 were both down 0.5 percent to, 6,457.92 and to 3,825.47, respectively. The DAX in Frankfurt, fell 0.4 percent to 8,010.70.
The euro traded at $1.31, while the pound traded at $1.51 and the Swiss franc fetched $1.06.
Retail and luxury stocks were mostly down, with the exception of Marks & Spencer, which advanced 6.9 percent on the back of press reports that it’s the target of a potential takeover bid by Qatar Investment Authority.
The QIA declined to comment, but source close to the Gulf state’s sovereign wealth fund said it had no interest in buying the British retailer.
Other stocks on the uptick included Safilo Group, up 2.9 percent to 10.29 euros; Hugo Boss, 1 percent to 86.42 euros, and Next, 1.1 percent to 41.34 pounds.
Among decliners were Salvatore Ferragamo, which sank 2.2 percent to 20.90 euros, and Brunello Cucinelli, which was down 1.5 percent to 17 euros.