J.C. Penney's board of directors has ousted CEO Ron Johnson after only 16 months on the job as a risky turnaround strategy backfired and led to massive losses and steep sales drops.
The department store chain said that it has rehired Johnson's predecessor Mike Ullman, 66, who was CEO of the department store chain for seven years until November 2011.
The announcement comes as a growing chorus of critics including a former Penney CEO, Allen Questrom, called for his resignation as they lost faith in an aggressive overhaul plan that included getting rid of most discounts in favor of everyday low prices to bringing in new brands.
The biggest blow came last week from his strongest supporter activist investor and board member Bill Ackman, who had pushed the board in the summer of 2011 to hire Johnson to shake up the dowdy image of the retailer. He reportedly told investors on Friday that Penney's execution "has been something very close to a disaster."
Still, some analysts were surprised that the board didn't give the former Apple and Target executive until later this year to reverse the sales slide. Johnson was in the midst of rolling out shops devoted to brands like Joe Fresh and home furnishings designer Jonathan Adler. The new shops, which started opening last year, had been faring better than the rest of the store.
"I truly believed that he had until holiday 2013," said Brian Sozzi, CEO and chief equities strategist Belus Capital Advisers. "Today's announcement is an indictment of his strategy."
Sozzi said he thinks that Ullman will only serve as an interim CEO and is there to "slow the pace of change." He expects the Plano, Texas company's board will hand off the job to another executive who may want to take the company private.
Johnson's future at Penny became uncertain after the department store retailer reported dismal fourth-quarter results in late February that capped the first full year of a transformation plan gone wrong. Penney amassed nearly a billion dollars in losses and its revenue tumbled almost 25 percent to $12.98 billion.
Under Johnson, 54, Penney ditched coupons and most of its sales events in favor of everyday low prices. It brought in hipper designer brands such as Betsy Johnson and updated stores by installing specialty shops devoted to brands such as Levi's to replace rows of clothing racks. Johnson's goal was to reinvent Penney's business into a trendy place to shop in a bid to attract younger, wealthier shoppers. But since Johnson, who was the mastermind behind Apple's profitable stores rolled out his plan, once loyal customers have strayed from the 1,100-store chain. It hasn't been able to attract new shoppers to replace them.
Initially, Wall Street supported Johnson's ideas. In a vote of confidence, investors drove Penney's stock up 24 percent to $43 after Johnson announced his vision in late January 2012. But as Johnson's plans unraveled, Penney's stock lost more than 60 percent of its value. Meanwhile, credit rating agencies downgraded the company deeper into junk status. On Monday, the stock closed at $15.87, down 50 percent since Johnson took the helm.
In one of the biggest signs of the board's disapproval of Johnson's performance, Johnson saw his 2012 compensation package plummet nearly 97 percent to about $1.9 million without a sizeable stock award he got last year and no bonuses, according to a filing last week.
Meanwhile, in another blow to Johnson's turnaround strategy, Vornado Realty Trust, one of Penney's biggest shareholders, sold more than 40 percent of its stake in the company last month. The company's chairman CEO Steve Roth sits on Penney's board.
During the fourth quarter that ended Feb. 2, Penney widened its loss to $552 million, or $2.51 per share, up from a loss of $87 million, or 41 cents per share a year ago.
Total revenue dropped 28.4 percent to $3.88 billion. .