Fashioning a Turnaround

Many companies have managed their way to profitability, only to be stymied about how to spend all that cash.


Say what you will about hard times, at least the corporate prescription for dealing with them is straightforward: a few layoffs here, a little debt restructuring there; throw in some supply-chain optimization, maybe a bit of offshore outsourcing, and
bingo — a better bottom line.

Boosting the top line, on the other hand, is more problematic, especially right now, when the stock market offers few bargains and overall GDP has grown slowly. Today, many companies have managed their way to profitability only to be stymied about how to spend all that cash. Good choices are especially limited in a mature industry like retail, where players all vie for market share in the shadow of Wal-Mart.

And nowhere in retail is the shelf-to-shelf combat more heated than in the department-store sector. For that reason, the recent textbook turnaround of J.C. Penney (see "A Penney Saved") raises as many questions as it answers. As senior writer Tim Reason reports, the turnaround team of CEO Allen Questrom and CFO Robert Cavanaugh has done an excellent job of bringing the 102-year-old company through its most recent troubled times. But whether a strong balance sheet translates to a sustained rebound remains to be seen. The recent replacement of Questrom with luxury-goods veteran Myron Ullman suggests the company is betting its house brands will give it an edge over the competition. That's a tough play. This is fashion, after all — where the top line may depend on predicting the hemline, and where fortunes rise and fall accordingly.


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