J.C. Penney Company, Inc. (NYSE:JCP) has had a poor 2013 by any standards. The firm’s stock has lost almost 24 percent in the first four months of the year, and the company’s board felt compelled to fire CEO Ron Johnson and replace him with his predecessor, a move that confused the market. The latest sign of weakness at the company was revealed today as the retailer drew $850 million on its $1.85 billion line of revolving credit.
Bill Ackman, the activist investor who has been involved in J.C. Penney Company, Inc. (NYSE:JCP) for the last year, has been inconsistent in his defense of the company. It was he that suggested Ron Johnson for the job and it was he that defended the CEO as earnings reports repeatedly disappointed. After the departure of Johnson however, Ackman attacked the CEO’s record and rolled back on several strategic goals at J.C. Penney.
Today’s credit draw was more than J.C. Penney Company, Inc. (NYSE:JCP) needed according to a statement from the firm. The company stated that the extra money is required for capital expenditure and in order to ensure liquidity. One of the specific purposes mentioned in the statement is the stocking of the newly overhauled “Home” department in its stores. The full press release from the company appears at the end of this article.
The retail operator saw its shares rise on today’s market. This morning’s equity performance was poor on worse than expected economic data from China and a bust in world commodity prices. At time of writing shares in J.C. Penney Company, Inc. (NYSE:JCP) were up 2.5 percent to $14.99. In contrast, the S&P 500 (INDEXSP:.INX) was down by more than 0.5 percent.
There is trouble ahead for J.C. Penney as it attempts to go in a direction different from that prescribed by Ron Johnson. The firm is now trying to roll back a strategy that represented a complete change in the company’s business. In the last year the company’s value has fallen by about 55 percent. The market did not believe in Ron Johnson’s plan, but there’s a reason he tried to change the company; it was not performing before.
J.C. Penney is working with The Blackstone Group L.P. (NYSE:BX) in order to develop other sources of funding going forward. The retail giant has a cash problem, and it cannot rely on short term credit solutions forever.
J.C. Penney Company Inc. (NYSE:JCP) is a risky bet in the retail sector for investors who think Bill Ackman can recoup his losses. Risk averse investors should stay away.
PLANO, Texas (April 15, 2013) – J.C. Penney Company, Inc. (NYSE:JCP) today announced plans to enhance the company’s financial flexibility and position. As part of that process, and consistent with its previously stated plans, the company has drawn $850 million out of its $1.85 billion committed revolving credit facility. Proceeds will be used to fund working capital requirements and capital expenditures, including the replenishment of inventory levels in anticipation of the completion of its newly renovated home departments next month.
Chief Financial Officer Ken Hannah said, “Earlier this year, we increased our revolving credit facility in anticipation of operating, working capital and capital expenditure needs, especially during the first half of the year. As we near completion of the home department transformation in over 500 stores, we have been undertaking and will continue to experience a significant inventory build and increase in capital expenditures.”
Hannah continued, “The draw under our revolver today provides more than our current funding needs to ensure our continued liquidity. Moreover, we will continue to explore additional capital raising alternatives with the assistance of our financial advisors.”
Over the past few months, the company has worked to improve performance through changes in its pricing and promotional strategies, including the return of coupons, and the development of other new initiatives to drive store traffic and deliver the style, quality and value that its customers want. The action today bolsters those efforts, as well as the company’s on-going financial position.
