Ron Johnson’s new plans for JC Penney have already added $1.5 billion in value to the stock in just two days, Forbes reports. The former retail chief at Apple is planning a logo redesign as well as modifying the way JC Penney stores are laid out.
Ron Johnson has previously been noted as using what he learned as Apple’s retail chief to make significant retail improvements to J.C. Penney,
Forbes described how the stock price went up:
On Jan. 25, Johnson made the rounds and leaked his plan ahead of the big event on Jan. 26. J.C. Penney will in the future be known as jcpenney. There is a new logo to evoke the image of the American flag. The stores will have a number of small boutiques as opposed to rows of racks. Most importantly, J.C. Penney will introduce a simplified promotion and pricing structure.
J.C. Penney also plans to cut a large number of jobs and save $900 million over the next two years.
‘Buy the rumor, sell the news’ is a dictum often followed on Wall Street. When the stock did not go up after Johnson made the rounds, short sellers aggressively sold the stock short on Jan. 25. Nine out of 10 times this technique is profitable.
On Jan. 26, every time the stock would fall as it should have, one or more buyers would aggressively buy it and run up the stock. This is a common technique used to cause a short squeeze. Watching this buying, short sellers started buying to cover generating upward pressure on the stock. The higher the stock went, the more short sellers had to cover — the classic short squeeze.
When the company announced at the analyst meeting that it may meet or exceed earnings of $2.16 per share, it was like pouring gasoline on a fire. The consensus estimate was for earnings of $1.61. The news accelerated the short squeeze.
In two days, the technique of leaking the plan the day before and withholding the information on increased guidance until the Analysts Day caused a massive short squeeze adding about $1.5 billion to the stock value of J.C. Penney.