Case for Macy's (NYSE: M) vs JC Penney (NYSE: JCP)

JC Penney's CEO Ron Johnson (ex Apple Retail chief) was finally ousted after he failed miserably to turn around the company and Myron Ullman (the previous CEO) was brought in as the new CEO this week. This case is also interesting because of the involvement of the legendary hedge fund manager Bill Ackman of Pershing Square Capital Management which has a large position in JCP. Last 1 year return for JC Penney (NYSE: JCP) is -60% and every Tom, Dick & Harry from the ‘street’ has made money shorting JCP since it was obvious over a period of time that the turnaround strategy for JCP including removal of the coupon-ing, flat prices, store within a store and the free 'haircuts' was not working as JCP was losing millions quarter after quarter. Even the latest same store sales results for JCP came in at a miserable -10%.

In the mean time Macy's Inc. (NYSE:M) has been having a tremendous performance with an amazing execution under the leadership of the current CEO Terry Lundgren and clearly demonstrated through its fabulous same store sales numbers where it has been beating its own estimates month after month. This is also reflected in its EPS numbers for the last couple of years for every quarter where it has been consistently beating the street estimates and hit a fresh 52 week high today 04/10/2013 of $44.95. JC Penney's pain has been Macy's gain since Macy's has been able to attract some of the traffic from JC Penney into its stores. If you have played both these names from a 'pair-trade' (Long 'M', Short 'JCP') perspective for the last year you have made a lot of money. Additionally Macy's is incredibly cheap compared to any other retailer out there in terms of forward PE basis and has more room to run.

As things stands right now, maybe only a private equity LBO deal or some drastic change in strategy may change the fate for JCP, otherwise we are heading more south in this US based retailer.