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J.C. Penney Is Still A Mess, With or Without Ackman

J.C. Penney Is Still A Mess, With or Without Ackman

Photograph by Mark Lennihan/AP Images

Maybe the best time to buy is the minute Bill Ackman opens his mouth. While the activist shareholder has been having a rough ride with Herbalife (HLF) and J.C. Penney (JCP), he does know how to spark excitement. After Ackman quit the board on Aug. 13, J.C. Penney’s shares rose, then fell as investors realized that the guy who owns 18 percent of the company is so unhappy he might actually sell. Still, it was a nice burst of euphoria, much like the jump on Aug. 8, when Ackman pressured the retailer to speed up its chief executive officer search.

In fact, if Ackman turns his back on Penney, the retailer may lose the most exciting thing it has to offer. Analysts expect J.C. Penney to report thinner margins and fallings sales when it reports earnings next week. The star-studded drama at the top—with George Soros and even Starbucks (SBUX) chief Howard Schultz stepping into the ring—doesn’t move product on the floor. While August may be time to kick back at some companies, it’s a high holiday in retail, and back-to-school shoppers are critical.

As the designated architect of Penney’s downfall, having personally plucked former CEO Ron Johnson from Apple (AAPL), Ackman probably didn’t have many fans left in the boardroom. He probably didn’t have much patience, either. Penney’s shares have fallen as enthusiasm rose for Herbalife, a stock Ackman has bet $1 billion against. Why waste time in meetings when people won’t listen to what you say?

Then again, that’s what Ackman does. Whether he’s trying to oust the CEO of Canadian Pacific (CP:CN) or recruiting “the Steve Jobs of retail” to run Penney, grabbing attention is critical for getting support. Dan Loeb and Carl Icahn don’t write their letters for an audience of one, either. Like Warren Buffett, just showing up can spark a rally. (Penney’s shares jumped by a quarter when Johnson was hired.)

The problem is that buzz can only last so long. When the excitement of change gives way to the reality of poor performance, investors move on. That’s harder to do when you’ve built up a massive stake, as Ackman and his brethren need to do in order to force change at the top. It’s even more challenging when other sound-bite-savvy activists steal your thunder by piling in on the other side of your bet.

Ackman is clearly pessimistic about Penney’s future under its current leadership, the same crew he fought to replace three years ago. If the rest of his portfolio were thriving, maybe he would just cut his losses and move on. As a major shareholder, what he really wants are positive results from J.C. Penney. Noisy bickering can send investors on a wild ride, but it’s a distraction to the real job of running a troubled retail chain. When headlines don’t help, Ackman knows it’s time to step aside.

Brady is a senior editor for Bloomberg Businessweek in New York.

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