NEW YORK (AP) — Shares of Martha Stewart Living and J.C. Penney Co. slid Monday, the first day of trading after a court signaled it would block a deal meant to revive sales at the storied but ailing retailer.
THE SPARK: Macy's filed suit to block an agreement that would allow J.C. Penney to sell some of the popular products made by Martha Stewart Living, saying it had exclusive rights to those goods until 2018. On Friday New York State Supreme Court sided with Macy's Inc. and issued the preliminary injunction to block the deal. The complaint was filed after J.C. Penney acquired a 16.6 percent stake in Martha Stewart Living, saying it planned to begin sales of Martha Stewart products in stores built for the company within J.C. Penney.
Martha Stewart Living spokeswoman Jeanne Meyer said Friday that the company still plans to move forward with sales of the products for J.C. Penney, but that it will comply with whatever restrictions are placed upon it at that time.
Much of the retail sector took a hit Monday after the Commerce Department reported that retail sales fell for the third straight month, the first time that has happened since the fall of 2008, during the depths of the financial crisis.
THE BIG PICTURE: J.C. Penney needs to find a way to stem declining sales. Under a new CEO, former Apple Inc. executive Ron Johnson, J.C. Penney is overhauling every aspect of its business from its pricing to the brands it carries. But concerns are growing about the company's ability to turn its business around. It posted a bigger-than-expected loss and a 20 percent drop in revenue in the first quarter. Earlier this month, Standard & Poor's Ratings Services lowered the retailer's credit rating further into junk status, saying changes have yet to take hold.
THE ANALYSIS: Paul Lejuez of Nomura Equity Research said the court's decision is not final, however it seems more likely now that J.C. Penney will not be selling Martha Stewart products until Macy's exclusive agreement expires years from now.
"This is another blow to J.C. Penney, which was likely assuming that the shop-in-shop format within J.C. Penney would allow them to carry whatever they wanted (since the Martha agreement with Macy's did allow for Martha to open standalone stores)," he wrote.
J.C. Penney could still sell Martha Stewart products not covered by the Macy's agreement, but Lejuez said many home products are off the table.
The analyst reaffirmed a "Neutral" rating for J.C. Penney and kept a $26 price target.
SHARE ACTION: Martha Stewart Living Omnimedia Inc. shed 7 cents, or 2 percent, to $3.46 in midday trading. Over the past year, the stock has traded between $2.77 and $5.19. It is off 21 percent for the year to date.
Shares of J.C. Penney Co. dropped 47 cents, or 2.4 percent, to $19.55 The stock has traded in a 52-week range of $19.43 and $43.18. For the year to date, the retailer's stock is down 44 percent.
Macy's stock added 6 cents to $33.70. The shares are up 2 percent for the year to date.