Penney Hurting For Cash, Readies Stock Sale
The reports have been flying in recent days that J.C. Penney is running low on cash reserves and needs to find ways to get some. As to how it will do that, the question was answered yesterday when the chain announced it will put 84 million shares of the company’s stock up for sale.
The announcement that it will sell shares seems to fly in the face of an earlier statement by the company that seemed designed to quell any fears that investors and other stakeholders might have about Penney’s future. In the statement, Penney management said turnaround efforts were gaining traction and that management was "encouraged by improvements in purchase conversion both in store and on jcp.com."
Penney’s share price tumbled by 15 percent in after-hours trading on news of the stock sale.
Brian Sozzi, CEO at Belus Capital Advisors, told CNN Money that the market reacted to "the shock and awe of seeing them raise more money." Mr. Sozzi added, it could be "the last money they can raise."
"They really have a very short period of time to turn it around," Barry Ritholtz, CIO of Ritholtz Wealth Management, told Breakout on Yahoo’s Finance site. "You have to have the confidence of your suppliers and the people who lend you money, otherwise you’re in trouble."
- J. C. Penney Announces Proposed Public Offering of Common Stock – J.C. Penney Company, Inc.
- JCPenney Responds to Inquiries – J.C. Penney Company, Inc.
- Penney Puts Itself on the Discount Rack – The Wall Street Journal (sub. required)
- J.C. Penney Shares Whipsaw as Debt Concerns Grow – Breakout/Yahoo! Finance
- J.C. Penney plans new stock offering – CNNMoney
Discussion Questions
Will a stock sale give J.C. Penney enough of a cash cushion to complete the department store chain’s turnaround? What do you see at Penney that makes you optimistic or pessimistic about its prospects in the near-term?
This reminds me of a couple of relatives I have. No matter how much money you give them, they will always be broke. Since JCP is no longer relevant but now redundant, I see no turnaround.
A stock sale (if successful) can only provide a short-term supply of cash rather than a longer term answer to the question of how JCP returns to profitability on its depressed sales base. And the current shareholders (including hedge funds who bought in after Bill Ackman’s exit) can’t be happy about the entire situation beyond the share dilution.
While sales at JCP may be about to turn a comp-sales corner, the profit model (margins and expenses) appears unsustainable in the $13-14 billion sales range. Where is the urgency about converting the failed merchandising efforts of the Johnson era into traffic, sales, cash, floor space and fresh inventory? It’s time for the JCP team to stop acting like it’s “business as usual.”
This one is simple. I will write it again. JCP is dead, they just don’t realize it yet. Their focus on short term results and management’s lack of comfort with changing the department store model killed them a long time ago.
Of course a stock sale only gives you a cushion if people are willing to buy the stock, but at the moment, sadly, JCP has trouble getting people to buy ANYTHING from them. What makes me pessimistic? That we’re even asking this question.
I love the new JCPenney stores and online experience but sadly, that is not enough to make it work. I look back at the grand history they have accumulated over all these many years, and again sadly, see us all waving good-bye to an American Icon.
Where is the magic wand?
In the words of Yogi Berra … “It’s like deja vu all over again.” This is like watching a replay of Circuit City’s demise.
A stock sale only generates cash. Cash will not fix what is fundamentally wrong with J.C. Penney. Short-term cash will only provide temporary relief to the inevitable demise of a retailer who is no longer relevant for today’s omni-channel consumers.
Okay, here’s the thing…raising money through selling stock is a WAY better alternative than using an asset-based loan. Inventory valuation can change depending in the lender’s perception of soon-to-come sales. It’s a dangerous game, and if Penney is trading bumping up against the top of its line for pure cash, it’s a good trade. Period.
That doesn’t mean I think much about the company’s long-term prospects, but smart money guys in an erratic selling environment are wise to stay away from ABLs.
I think they are not going to make it. It is clear the operation is in a state of disarray from a merchandising and also fiscal perspective. When you can’t put out a clear message to the customer (#1) or the investor, you are just lost in the woods and not going to survive.
Ackman exited at the right time.
Add to this situation a soft retail season this year and you are flirting with disaster.
I was barely a teen but recall when Wards went under. They had remodeled many stores and tried to reinvent with different merchandise as I recall. History repeating itself?
Too bad JCP can’t raise cash by selling small format stores. But who is in a position to buy?
This is such a sad story. It’s especially poignant to those of us who loved the shiny Ron Johnson stores, with gorgeous, inexpensive merchandise. This story probably doesn’t have a happy ending, and selling this much stock looks like a harbinger of the end times.
Most of my thoughts have already been written. I have nothing much to add except we can expect store closings and more big box real estate on the market soon.
This is SO sad. I REALLY HATE to see the end and demise of an American Icon. This is Awful.
I wish them the best! They need a Christmas and Holiday Miracle! I agree with everyone on this unfortunate topic.