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Trial Goes On As J.C. Penney Tries To Forge New Way Forward

Friday April 12th, 2013 - 12:51PM


The excitement around the doings at J.C. Penney Co. has switched from the corporate headquarters near Dallas to a courtroom in New York where a potentially significant part of the Texas-based retailer's future hangs in the balance. Analysts note that the case brought by Macy’s Inc. remains a shadow hanging over J.C. Penney and its returning CEO Mike Ullman who can’t be sure about how he will proceed with the company until a judge rules whether or not the retailer can sell Martha Stewart Living Omnimedia-designed products or until the parties settle.

According to published reports, New York State Supreme Court Justice Jeffrey Oing has tossed out one part of Macy’s suit but left others in place, while exploring whether or not J.C. Penney’s sale of MSLO-designed product under the names Penney Everyday and Martha Celebrations violates an existing restraining order. In other words, and despite the headlines, little has been settled in court and the judge himself has appealed to the parties to settle the case. And so, according to still more reports, J.C. Penney CEO Mike Ullman has reached out to Macy’s CEO Terry Lundgren about a settlement. How much Ullman might be willing to invest in a Martha brand at J.C. Penney could be telling. The first stage of a shop-oriented product presentation that former Penney CEO Ron Johnson had developed is rolling out in 500 J.C. Penney stores, and the Martha Stewart boutique was to be the lynchpin. If J.C. Penney decides to let the Martha brand slip away, the odds become less that the shop presentation, already now characterized as something of a test by the retailer, will spread beyond the initial roll out.

However, any end to the case would permit J.C. Penney to more certainly formulate plans to turn around a continuing sales and profits slide.

Jason Asaeda, a Standard & Poors analyst, in a research note, observed that the ongoing trial raises execution risks that potentially could impact J.C. Penney in its entirety, at least until an outcome is reached.

However, Deborah Weinswig, a Citi Research analyst, in her own research note, pointed out that a ruling against J.C. Penney that prevents it selling Martha Stewart product permanently would leave the retailer on the hook for $100 million in inventory.