This "Hated" Retail Stock Could be on the Verge of a Huge Comeback

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Over time, the nation's major department stores have always sought to provide consumers with a unique shopping experience. Sears Holdings (Nasdaq: SHLD) was known for a healthy mix of hardware and appliances along with the usual assortment of clothes, jewelry and shoes. Kohl's (NYSE: KSS) was known for a solid merchandising touch in its clothing lines -- at reasonable prices. Target (NYSE: TGT), for its part, sought to be the home of trendy designers, such as Isaac Mizrahi and others.
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Yet in the past half-decade, it's become increasingly hard to tell these chains apart, as they've started to replicate each other's look and feel inside stores. As a result, same-store sales and profit growth have cooled off, and only Macy's (NYSE: M) can truly say that it has picked up market share with consumers. Investors have surely taken note: Shares of Macy's are up roughly 20% during the past five years. That may not seem like much until you realize that Macy's rivals have all seen their stocks move lower in that time frame.

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Perhaps no retailer has suffered from the industry's glut of me-too stores more than JC Penney (NYSE: JCP). The company's board realized that this once-thriving retailer had lost its edge and needed a change. It did so this past autumn and hired former Apple (Nasdaq: AAPL) executive Ron Johnson to turn things around. His efforts thus far have been quite uninspiring, so investors are still saddled with a losing play: Shares of JC Penney are off a whopping 60% during the past five years, the worst performance of any major department store retailer.

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JC Penney's Johnson quickly tried to show that he was unlike most retail executives. He made a bold move that clearly hurt the company's results in the near-term, yet it will likely end up helping in the long-term. He decided that the never-ending process of discounts and promotions had conditioned consumers to avoid paying full price. For this retailer, this means that earnings before interest, taxes, depreciation and amortization (EBITDA) margins had begun to steadily fall from around 11% in the middle of the past decade, to the 6% to 7% range in fiscal (January) 2010 and 2011 to just 3% in fiscal 2012. Johnson realized that the only way to rebuild margins was to get consumers to pay full price.

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Of course, if the company's stores are virtually identical to rival's stores, then why would consumers want to shop at JC Penney's? Here's where the Apple angle comes into play. Johnson has been hinting for quite some time that JC Penney would emerge as a very different kind of retailer. And now we have a glimpse of what he's been planning.