J.C. Penney Sees Risks in Morale, Efficiency as Workers Exit

J.C. Penney Co., the department-store company undergoing a turnaround led by Chief Executive Officer Ron Johnson, said its operating efficiency may be hurt after it fired employees while others left voluntarily.

The company listed new “risk factors” surrounding its workforce reductions, as well as concern that customers may not accept new marketing and merchandising strategies, in its third-quarter regulatory filing yesterday. J.C. Penney, based in Plano, Texas, said the departures of officers and line managers with “specific knowledge” about the company and its industry may be “difficult to replace,” according to the filing.

“We now operate with significantly fewer individuals who have assumed additional duties and responsibilities and we could have additional workforce reductions in the future,” J.C. Penney said in the filing. Combined with the company’s newly decentralized management structure, the changes “may negatively impact communication, morale, management cohesiveness and effective decision-making, which could have an adverse impact on our operating efficiency.”

J.C. Penney’s revenue has declined by more than 20 percent for three straight quarters as Johnson, who joined as CEO about a year ago from Apple Inc., loses customers in a bid to implement an everyday low-pricing plan and turn the chain into a collection of branded shops. The company said its new strategies rely on customers’ acceptance, and that any changes may be “substantial” and “result in significant additional costs” while potentially disrupting the business, according to the filing.

The company didn’t include that language in its second-quarter filing.

Settlement Payments

J.C. Penney fell 1.4 percent to $17.53 at the close in New York. The stock has tumbled 50 percent this year, compared with a 12 percent gain in the Standard & Poor’s 500 Index.

J.C. Penney, with 159,000 employees as of Jan. 28, offered a lump-sum settlement payment in September to about 35,000 participants in a pension plan who separated from service with a deferred vested benefit as of Aug. 31, according to yesterday’s filing. It didn’t provide the latest head count.

The company also added a risk factor saying that suppliers and vendors may respond to concern around the company’s financial results or liquidity by demanding “more stringent payment terms,” according to the filing.

In another risk factor, J.C. Penney said securities class-action litigation has often been pursued against companies following periods of volatility in the stock market or in specific shares, which would be costly and distracting.

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