Reuters reports that J.C. Penney Co. Inc. (NYSE: JCP) has hired restructuring specialists as its path to financial viability narrows. J.C. Penney claims it sometimes taps “external advisors to evaluation opportunities.” Whichever claim is true, one thing is certain. Time is running out for J.C. Penney to avoid the fate of retailers such as Toys “R” Us and Sears. The future of hundreds of stores and tens of thousands of employees is at stake.
J.C. Penney has about 860 stores in the United States and Puerto Rico. It employs approximately 95,000 people. Those stores and people are what is at risk if the retailer’s fortunes do not reverse sharply, and very soon.
The acceleration of store closings at other retailers and the number that have gone into bankruptcy shows that even relatively large retailers are not close to immune to the consumer swing to e-commerce. Amazon.com often is blamed for this, though it is not the cause entirely. Retailers like Walmart have built up their online presence significantly.
While J.C. Penney has access to cash, it has over $3.5 billion in debt as well. Most of that is not due in the near term, but as its revenue continues to spiral downward, the maturity of that debt gives it of little advantage. In J.C. Penney’s most recent 10-K, it made the challenge quite clear: “[T]here is no assurance that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements.” Add that to the Reuters story, and time may be almost up for J.C. Penney.
There are three other signs of how deep J.C. Penney’s problems are now, and none is likely to get better in the foreseeable future. In fact, they are likely to get worse. First, the retailer lost $154 million in its most recently reported quarter on revenue of $2.6 billion. That compared to a loss of $78 million on revenue of $2.7 billion in the same quarter the year before.
Also, the stock market has completely deserted J.C. Penney. It has become a penny stock, most recently trading at $0.90 a share. That gives the company a market value of $284 million. The shares are down 83% in the past two years. The crater in the stock price is based on a widely held opinion that the company’s stockholders will be wiped out entirely.
Finally, credit research firm Moody’s downgraded its “probability of default” rating in May. Moody’s ratings are considered the gold standard within its industry.
J.C. Penney is already among the retailers closing the most stores in 2019. It faces a financial situation worsening so quickly that it cannot keep its 860 stores open at all.