February 12, 2012 | Blog

Disclosure Thoughts for Companies in Transition: Sears Finally Wakes Up, While J.C. Penney May Have Just Fallen Asleep

For those of you who don’t follow the retail space, I thought this was really interesting.  Sears is finally going to open the kimono and hold an earnings call.   On the flip side, J.C. Penney (JCP) is taking a page out of the Netflix communications playbook and will be holding a conference call that won’t include a Q&A session (Netflix has one, but e-mail only so effectively it’s the same approach).  If you ask me, JCP hasn’t learned a thing from Sears’ volatile ride these past few years.

Sears attempted the Buffett communications model, but finally found that leaving the hedge fund world to rumor monger without consistent communications from them was a major problem.  In my opinion, that stock’s less about a turnaround play today and more one big trading vehicle focused on bets for or against Mr. Lampert.  If you dig into Sears’ historical 13F filings, you’ll see that it’s lost several high quality (“lead-steer”) investors over the last few years.  Once you lose (or burn) a high profile investor, it’s rare that you get them back.  It didn’t have to get to this point, and better communication and guidance could have really benefitted Sears’ shareholders over the last few years.  So I applaud Sears for finally realizing that the company’s massive and extended transition in their business model requires a more consistent and open dialogue with Wall Street.

JCP though risks a similar path in my opinion.  A new and exciting CEO, with a new pricing strategy, new branding, new guidance and a growing following on Wall Street…sounds like Sears a few years back doesn’t it?  However, JCP’s strategy has a lot of moving parts, including significant cultural shifts and the need to communicate at a high level with numerous stakeholders.  And I just can’t see why you would want to limit your communication with shareholders.  The Q&A sessions of most earnings calls, while admittedly dominated by sell-side modeling questions, are the most valuable part of the call for investors.  It allows deeper dives into issues and most importantly, repetition of key messages.  It also provides a more appropriate disclosure vehicle than 1-on-1 calls with large investors after the earnings release.  Thus, it’s safer too, assuming you’re well prepared.

So my advice to the new and exciting CEO at JCP is, take a quick look at the Sears stock price chart and reconsider your approach to earnings calls.  Any company that’s going through such a radical transition in their business like JCP, has to be ready for bumps along the way.  Buy-side investors are often tolerant and understanding when things don’t go exactly according to plan, but only when they’ve had the opportunity to question and dig more deeply into the issues, and more importantly, how those issues are likely to impact the future.

 

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