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A different kind of data breach at JCPenney


Who hasn’t prematurely hit the send button on an email? However, when it happened to a JCPenney executive who disclosed first quarter same store sales to an analyst, it begs the larger question of why the pair were even having a conversation about sales with two weeks left in the quarter.


Retailers often afford major investors and analysts special access and the opportunity to have conversations about business initiatives, market conditions, the competitive climate, etc. As long as the conversation doesn't get too specific or steer into areas determined to be “material,” then it’s all good. What constitutes “material” information can vary widely from retailer to retail depending on the company’s size, and determinations about what type of information is material can be quite subjective and are influenced by a company’s commitment to transparency and fair disclosure.



Some types of information are so obviously material (think sales, mergers, CEO resignations) that they should never be discussed outside of the board room or among senior officers in advance of a broader disclosure being made via a press release or regulatory filing. This is what makes the situation at JCPenney very strange and serves as a cautionary tale for other retailers in the digital age.



The company disclosed in a filing with the Securities and Exchange Commission on April 14, 2015, that the prior day it, “became aware that a senior official of the company inadvertently sent an email communication to a securities analyst that contained non-public information regarding the company’s comparable store sales results for the fiscal first quarter of 2015 to date, which are approximately 6%. Based on results to date, and taking into account the shift of Easter into the fiscal month of March this year, the company currently expects comparable store sales for the first quarter to be in the range of 3.5% to 4.5%.”



In essence, because of the “inadvertent” email, the company was forced to narrow the range of its first quarter same store sale forecast after indicating in mid-February when it released fourth quarter results that it expected first quarter comps to be in the range of 3% to 5%.



Now it is conceivable that a senior executive with a jam packed inbox hastily composed an email and the “to” line auto-populated with the name of an analyst similar to that of the intended recipient. If that’s not the case, and the executive was engaging in an intentional and ongoing dialogue with the analyst, then JCPenney’s characterization of the improper disclosure as inadvertent doesn’t pass the smell test.



JCPenney did not disclose how it became aware of the inadvertent disclosure, the name of the senior executive involved, the analyst or their firm. Providing those pieces of information would speak to the company’s commitment to transparency. The company could also have shared in the filing details regarding its policy concerning communications with investors. As it stands now and without further disclosures from the company it is impossible to know whether the analyst who received the information acted on it inappropriately, shared it with others who may have done so or what measures are in place to protect investors from inadvertent email.


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