US retail department store giant J.C. Penney has announced a partnership with Martha Stewart Living Omnimedia Inc. to the tune of $38.5 million. As part of the agreement, J.C. Penney paid $3.50 per share to own a 17% stake in the company and an additional 12% premium to Martha Stewart Living's closing price. J.C. Penney will also hold two seats on the board of the company.
In return, Martha Stewart Living and J.C. Penney are working together to open Martha Stewart Living mini-stores and an e-commerce website that are set to be launched by February 2013.
The agreement is the first significant decision by J.C. Penney's new CEO Ron Johnson, who formerly led Apple's retail operations. Business strategists speculate that the new purchase may point toward an overall new strategy for J.C. Penney to diversify through new brands and products.
Martha Stewart told reporters in a telephone interview that she will “have extraordinary creative freedom to do the best work of her life.” Johnson believes the move “will be transformational” for J.C. Penney, and said the retailer will not attempt to limit Martha's product designs because of their unique quality.
The partnership is set to last 10 years unless renewed.
$200 Million for Martha Stewart Living
Martha Stewart Living is expected to gain over $200 million in earnings from advertisements, royalty payments and design fees throughout the contract term. The deal comes after several years of poor sales for Martha Stewart's merchandizing, magazine publishing, and television businesses.
From 2007 until 2010, the company's revenue dropped by over 25%. After the partnership was announced, Martha Stewart's shares rose 33%, or $4.16 per share. Martha Stewart Living will reward its shareholders with a $0.25 dividend per share.
In November, J.C. Penney posted its first quarterly loss since 2009. J.C. Penney stock improved by 0.6% to $33.51 upon news of the deal.
J.C. Penney Posts Q3, Black Friday Losses
J.C. Penney reported third quarter losses of roughly $143 million, or $0.67 per share, due to restructuring costs and reduced spending from their target market. The increase in restructuring costs may be due to J.C. Penney's new tactics to promote sales growth and overall profitability, according to Citigroup analyst Deborah Weinswig.
Excluding restructuring costs, J.C. Penney earned $0.11 per share. According to Executive Chairman Myron Ullman in a statement to the Financial Times, mall traffic has declined 2.4%, with middle-income customers purchasing less for the holidays as higher-income individuals respond well to the holiday sales. In response, the company has hired PMK-BNC, a public relations company, to improve its image, especially among middle-income consumers.
Although company's sales have dropped 4.8% to just under $4 billion, November sales exceeded those of the year prior just as the holiday weekend was beginning. J.C. Penney lost sales during Black Friday due to a decision to open later in respect for families on Thanksgiving. Sales activity remained slow throughout the holiday weekend, but online traffic was up 12% from Thanksgiving Day until Cyber Monday.
Although the company's year-to-date stock has grown 3.5%, the fourth-quarter outlook still appears weaker than expected.
Key Statistics – Retail in the US (source: US Census Bureau)
- Retail trade sales improved by 0.6% in September, and 7.3% from the year prior.
- Retail e-commerce sales improved by 1.9% in the third quarter to over $48 billion.
- Food and retail services sales increased 0.5% in October to over $397 billion from September, and 7.2% from the year-earlier period.