Bill Ackman: Why We Think J.C. Penney Is A Great Bet
Pershing Square Capital's Bill Ackman is on CNBC's Squawk Box this morning and after discussing his trade on the Hong Kong dollar yesterday at the Delivering Alpha conference, he is talking about retail.
Ackman said that retail is generally a tough business, a very risky business, which is why he has owned relatively few at his time at Pershing.
He said that Pershing made a lot of money in Sears Canada, as Pershing was able to recognize the opportunity with the company's credit card portfolio before the market was. Similarly, Pershing was not able to do the same with Target (NYSE: TGT) before the credit crisis.
Pershing wanted Target to sell its credit card portfolio among other restructurings before the credit crisis hit in 2007.
Joe Kernan asked him about J.C. Penney (NYSE: JCP), and Ackman said that J.C. Penney has been around a along time. The 100 year old company has free real estate, and has historically underperformed the last ten years. The retailer was able to attract Ron Johnson from Apple (NASDAQ: AAPL) to run it. Ackman is particularly high on the investment, as it has free real estate, good brands, and spends a relatively low amount of money on its marketing. Ackman said that he does not believe that J.C. Penney gets a good return on its marketing investment.
Home Depot (NYSE: HD) was being discussed, as Bernie Marcus, co-founder of Home Depot was on, and Ackman said that he thinks Home Depot is a great company and a cheap stock.
Talking more about J.C. Penney, Ackman compared the potential shopping experience to Apple. He said that there is more to the Apple store then just the design. It has the checkout experience, as well as the "genius Bar." He said that former J.C. Penney Ceo Mike Uhlman bringing Sephora into the stores is a "brilliant move." He said the beauty of a department store is you can sell anything, as evidenced by bringing in Sephora. He believes the company can change the check out experience, the look and feel of the store, and up the low sales per square foot. Currently, J.C. Penney has about $300 per square foot.
He discussed the new CEO, Ron Johnson in more detail, and why this was a bet on him, as well as a bet on the company itself. Ackman said that it was a bet on the brand, and J.C. Penney has very valuable assets. When Steve Jobs looked to build the Apple Stores, he looked to Johnson, who had similar success with building Target (NYSE: TGT) stores. He believes the customer experience at the Apple stores are a big part of the success, and J.C. Penney could do something similar. Perhaps, it could have a "jeans bar" (a play on the genius bar at Apple).
David Faber asked whether Ackman was going to try to monetize the real estate. Ackman said that J.C. Penney owns some REITs and shopping malls as part of its assets, and shareholders get no value from them. It is a small part of the story. J.C. Penney will be successful if sales go from $300 per square foot to higher. Target did a great job recently by bringing in Missoni, and J.C. Penney could be very successful if it does something similar.
He was also asked about Family Dollar (NYSE: FDO), which he unveiled at Ira Sohn. He said it is a "reflection of what's going on in the economy." Customers do not need to drive all the way to wal-Mart (NYSE: WMT), as dollar stores are more convenient, and is seeing an increase in customers shopping at these stores. He said that Family Dollar has not done as good job as Dollar General (NYSE: DG) since Dollar General returned to the public markets. Family Dollar was neck and neck with Dollar General, but KKR (NYSE: KKR) took it private, and did a great job of cleaning it up. It meaningfully changed the business, and accelerated the sales. Pershing Square owns more than Nelson Peltz, but is being a passive shareholder in this case, while Peltz is leading the charge in activism. He believes there is a huge gap between Family Dollar and Dollar General, and if Family Dollar catches up, it could be a great investment.
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