In December 2011, Ron Johnson hailed J.C. Penney Co.s $38.5 million investment in Martha Stewart Living Omnimedia Inc. as transformational.
Almost two years later, Johnson is gone as chief executive officer and J.C. Penney last week rolled back an agreement tied to the investment in the homemaking mavens company. Under an amended deal, the partnership will end in June 2017 instead of 2021 and the parties will stop making products in categories at the center of a lawsuit brought by Macys.
J.C. Penney, based in Plano, Texas, will also give back the 11 million shares it bought for $3.50 each and the right to board representation at Martha Stewart Living, it said in a statement.
Macys sued the companies last year, saying it had exclusive rights to sell Stewart-designed items in categories including bedding, bath and cookware. After the suit, J.C. Penney rebranded the Stewart goods in those disputed categories JCP Everyday. Macys then pushed for the sales of those items to be stopped because they were designed by Stewarts company.
The new agreement between J.C. Penney and Martha Stewart Living, which includes the continuation of the department-store chain carrying Stewart-branded window treatments and holiday goods, hasnt persuaded Macys to drop its case.
The announcement showed the old deal was illegal and Macys case for damages remains before the court, Jim Sluzewski, a spokesman for the chain, said in an emailed statement.
We are not dropping our claims, Sluzewski said.
J.C. Penney shares had declined 67 percent this year through Tuesday, compared with a 22 percent gain for the Standard & Poors 500 Index. Martha Stewart Living, based in New York, rose 4 percent to $2.35, after sinking 7.8 percent this year.
The century-old retailer is trying to revive sales after revenue collapsed during Johnsons failed attempt to transform the chain into a destination for younger and wealthier shoppers. During his 17-month tenure, he alienated longtime customers by cutting back on discounting and swapping out well-liked brands for new merchandise. He also spent heavily on remodeling more than half the chains 1,100 stores.
Those higher costs coupled with sinking sales led to losses and an eroding cash position. Since reclaiming the CEO job in April, Mike Ullman has raised $3.89 billion to shore up the chains balance sheet.
J.C. Penney reached the new agreement with Stewarts company as it works to revamp its home department. The JCP Everyday items had been discounted for months as the retailer tried to liquidate excess merchandise.
The overhang of the lawsuit has also been considered by analysts as an obstacle to improving the results in the home department. The original deal, announced Dec. 7, 2011, was designed to generate at least $200 million in revenue for Martha Stewart Living over 10 years. Sales at Stewarts company were $179.3 million in the past four quarters through June 30.