According to CNBC’s Jim Cramer, sometimes even strong management cannot change a company’s direction if it is heading for disaster.
When he purchased Foot Locker for the CNBC Investing Club’s Charitable Trust, he admitted to having too much faith in the new management. He expressed confidence that new CEO Mary Dillon, who formerly worked at Ulta Beauty, would be able to change things around for the floundering footwear retailer.
“I knew turning around Foot Locker would be a herculean task, but I had so much confidence in Dillon’s leadership that I figured everything would be fine no matter how hard the story got,” he said. “While I put a lot of emphasis on the need for great management and how terrific CEOs can accomplish incredible things here, some things are impossible for even the best executives in the world.”
In retrospect, Cramer believes that arranging a return for a mall-based store with a lot of spare inventory, such as Foot Locker, is simply too difficult. He quickly understood that any potential rebound would take longer than he was willing to wait, as the company burned through cash and announced mediocre earnings with drastically declining sales.
“Management matters, sure, but when you bring in a new pilot on a crashing airplane, they can’t defy gravity,” Cramer said. “Pure hubris on my part. Hubris is an awful trait when it comes to investing, and I allowed it to cloud my judgment like a rookie would. Shame on me.”
