JC Penney and Macy’s Short Interest Surge Ahead of Holidays

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A number of short sellers have bet that J.C. Penney Co. Inc. (NYSE: JCP) and Macy’s Inc. (NYSE: M) will have unusually harsh holidays. Both have been marked as retailers that may not survive to the end of the year in their current forms.

For the period that ended October 13, J.C. Penney short interest rose 14.2 million shares to 152.1 million. That is 52% of its float, an extraordinarily high number. J.C. Penney is now the fourth most shorted stock that trades on the New York Stock Exchange.

The short interest in Macy’s grew by 9.5 million shares to 51.9 million. That is 17% of its float.

Macy’s and J.C. Penney are two of the most troubled large retailers in America. Theories about their problems range from Amazon.com’s destruction of brick-and-mortar retailers to poor merchandise selection to too much competition among mid-market retailers.

The stock prices of the two companies are some justification for aggressive shorting. J.C. Penney shares are down 56% this year to $4. Macy’s shares are down 41% over the same period to $21.

Each company has shut down a large number of locations in an effort to stem loses. J.C. Penney has closed 138. Macy’s has shuttered 68. In each case thousands of people have lost jobs.

Neither company can afford a sharp erosion in same-store sales in the final quarter of the year, which includes Thanksgiving, Black Friday and the weeks before Christmas. Many retailers make all of their profits during this period. A loss of revenue probably means many more store closings, and it may make one or both companies no larger viable as a large, national retailer.

The other problem the two companies have is modest, or worse, presences in e-commerce. Neither has a substantial part of its sales online, although the shopping public is increasingly going online.

Both stocks have a very good chance they will continue to sell off. And, in that circumstance, short sellers will make a killing.