J.C. Penney may be looking for capital

The troubled department-store chain may be seeking as much as $1 billion in cash to stay afloat. One option: Sell part of the company to an investor.

By Charley Blaine Apr 11, 2013 8:29PM
Mary Altaffer AP PhotoA key question after J.C. Penney (JCP) parted ways on Monday with then-CEO Ron Johnson was how long the company could stand on its feet before it ran out of cash.

The answer appears to be one year, assuming the company can raise as much as $1 billion in new capital. The Wall Street Journal said late Thursday that the retailer has hired investment bankers at the Blackstone Group for advice on how to stabilize its dwindling cash resources.

The Journal said bond analysts believe that, under current conditions, the company has perhaps a year before its cash runs out. That puts more pressure on CEO Myron Ullman to cut costs, look for new investors and lure shoppers back into Penney stores.

Johnson was ousted -- and replaced by his predecessor -- after the failure of a costly and aggressive overhaul that involved rebuilding its 1,100 stores as collections of boutiques. Johnson also sharply cut back the coupons and artificial discounts that long-time customers loved.

Shoppers didn't buy into the plan. Penney sales fell 25% in the 2012-2013 fiscal year to $12.99 billion. The company lost $4.40 a share for the year after a loss of 70 cents in the prior year. Sales fell 28.4% in the fiscal fourth quarter to $3.88 billion.
The shares closed up 77 cents to $14.86 on Thursday -- the third-best percentage gain among stocks in the Standard & Poor's 500 Index ($INX). The shares, however, are down nearly 25% this year after falling 43.9% in 2011.

The shrinking cash reserves make Ullman's job more challenging. Hundreds of Penney stores are still being renovated under Johnson's plan. It's not clear if the work can be stopped or what it will take to make the stores ready for shoppers, UBS analyst Michael Binetti told The Journal.

Penney's cash balance fell to $930 million as of Feb. 2, down from $1.5 billion a year earlier. In November, Penney had said it aimed to end the year with $1 billion in cash. The total would have looked worse except Penney shifted $85 million in payments to vendors from the fourth quarter into the first week of the new quarter, The Journal said.


The company has access to a $1.85 billion line of credit that it had yet to draw upon as of last month. But drawing down the credit line could send a negative signal to investors that the company is running out of money, analysts said.


More on Top Stocks

Tags: JCP
2Comments
Apr 12, 2013 9:17AM
avatar
This could be very lucrative given the right strategy and of course execution. Plus everyday folks are rooting for them. I'm excited to see what the future holds and might actually pick up some shares given the right price and more concise future outlook on the company.
Apr 12, 2013 7:54AM
avatar
I want to see this American icon financially saved. 
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

105
105 rated 1
271
271 rated 2
420
420 rated 3
633
633 rated 4
492
492 rated 5
532
532 rated 6
725
725 rated 7
515
515 rated 8
343
343 rated 9
140
140 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
EOGEOG RESOURCES Inc10
SWNSOUTHWESTERN ENERGY COMPANY10
TAT&T Inc9
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.