JC Penney missed out on 3300% rally as dumped asset skyrockets

Bloomberg

JC Penney Co. bailed on Brazil more than a decade ago. In hindsight, sticking it out would have been the smarter move.
Lojas Renner SA, the Brazilian retailer that JC Penney divested in 2005 for $230 million, is now worth $7.9 billion, an increase of more than 3,300 percent. Meanwhile, the iconic American department-store chain has seen its own business founder as US brick-and-mortar outlets buckle under the weight of e-commerce. Penney is now worth just a fraction of its former value.
Working in Renner’s favour is the fact that mall-goers in Brazil have been slower than their US counterparts to alter their shopping habits in the digital age.
Renner also eschewed its department-store roots in favour of so-called fast-fashion, a strategy that has helped the retailer ride out Brazil’s years-long recession.
Investors have rewarded the company by driving the stock up by almost 150 percent since the start of 2015.
“The markets trust Renner’s management,” said Giovana Scottini, an analyst at Eleven Financial in Sao Paulo. “It’s a company that’s always changing.” Renner will soon undergo another transformation, perhaps its biggest since being dumped by Penney.
Plano, Texas-based Penney didn’t respond to a request for comment. Chief Executive Officer Jose Gallo, who has led Renner for more than a quarter century, is due to retire when his contract ends in January 2019. While the company declined to say who will take over, whoever it is will face a tough challenge in repeating Renner’s stock rally.
“One of Renner’s biggest challenges is Gallo’s succession,” Scottini said.
“The company would need a much steeper growth slope to have an upside from where the shares are at now.”
The company is trading at almost 29 times its estimated 12-month earnings.