JCPenney Co. Inc. (NYSE: JCP) is among America’s most troubled and embattled retailers. Its market capitalization is so low that it trades in pre-bankruptcy range. Based on same-store sales, revenue and its bottom line, the survival of the company is at risk.
The lean retail quarters are usually the second and third of the year. That means, with the exceptions of holidays like Mother’s Day and Father’s Day, retailer traffic is a desert. Big retail sales come after Thanksgiving, which leaves large retailers a few short weeks to make much of their money. J.C. Penney is among the department store operators that have to face customer starvation from April until September.
This will be particularly true because many of its locations are in malls, where traffic is often diving.
J.C. Penney’s Current Situation
J.C. Penney has about 850 stores in the United States and Puerto Rico. That puts its store count below many of its rivals.
National store footprint is crucial because of the level of access a large footprint gives to the overall population in both metropolitan and suburban areas.
J.C. Penney employs about 85,000 people. Some of these jobs are at risk every time the company shutters a location. Revenue was $11.7 billion in its most recent fiscal year.
The company’s same-store sales plunged 9.3% in the third quarter, which ended on November 2 last year. When adjusted for stores it closed, the number was still a breathtaking drop of 6.6%.
Revenue fell 8.5% for the quarter to $2.5 billion. This was an acceleration of the decline for the year. In the first nine months of the fiscal year, revenue was 6.8% lower to $7.6 billion. At least the net loss for the third fiscal quarter shrank some, down 38.4% to $93 million.
The posted long-term debt was $4 billion. The adjusted EBITDA (non-GAAP) gain was $106 million, up from $46 million in the fiscal third quarter a year ago.
J.C. Penney Stock Price Movement
J.C. Penney stock is down 92% in the past five years. Over the same period, the S&P 500 is up 93%, Walmart stock is up 41% and Target is 52% higher. Even shares of troubled retailer Macy’s are down 75%.
J.C. Penney’s market cap is down to $230 million, a signal that many investors believe the company will not make it to the fourth quarter, unless, perhaps, it can cut a number of stores.
To add to J.C. Penney’s load, the New York Stock Exchange has threatened it with delisting. The stock has not maintained a share price above an average of $1 for 30 days of trading.
The J.C. Penney board of directors mentioned one possible remedy. It announced: “The Company intends to pursue measures to cure the share price non-compliance, including through a reverse stock split of the Company’s common stock, subject to stockholder approval, if such action is necessary to cure the non-compliance.”
This is a desperate action. Stock prices often continue to deteriorate after reverse splits.
Management Changes and Forecasts
J.C. Penney’s forecast for the balance of the fiscal year was grim. In particular, comparable store sales for the period are expected to drop by 7% to 8%.
For some reason, Jill Soltau, chief executive officer, believes that management changes will make a turnaround more likely. If so, the move should have been made several quarters ago. She announced that J.C. Penney would add six new officers.
Among these appointments are a new vice president of marketing, a new executive vice president and chief customer officer, and a new vice president of digital marketing. It will take months before these people can have any effect on results.
These people may not be able to contribute much to implementing changes for the fourth quarter.
Management Pay and Ownership
According to the most recent proxy, CEO Soltau received amazingly high compensation, particularly for a company so deeply in trouble. She made $16,749,378 in the 2018 fiscal year. Some $6 million of that was a bonus.
Other officers did well. Several of those were in staff positions. Brynn Evanson, executive vice president in Human Resources, made $1,666,178. Brandy Treadway, senior vice president and general counsel, made $1,119,098
Board members also did well. None made less than $200,000
Large shareholders must be incredibly disappointed, if they still own their stock at all. As of the filing of the last proxy, BlackRock owned 43 million shares. State Street owned 28 million, and Vanguard owned 23 million.
Does J.C. Penney have any future at all? For that to be true, at least one of several things would need to happen.
It would need to go through another store consolidation, which would hurt its balance sheet due to severance and broken leases. It could go bankrupt like several other retailers, such as Sears. This might buy it time by lowering debt.
J.C. Penney almost certainly would go private at the same time, which would cut the costs of being a public company.
Finally, it might simply liquidate. That means its inventory would be sold off and it would not exist in terms of physical stores, and perhaps it would disappear online.
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