If you are one of the 9,000 JC Penney employees, it is time to update the old resume. It seems sales were negative 28% or so over the holiday season. The brilliant Apple trained CEO has managed to burn through $800 million of cash in one year and has $700 million left to burn through before bankruptcy. The good news for the employees is they can work on their resumes during working hours because there are no customers to interrupt them.
J.C. Penney Downgraded; Liquidity Concerns Mount
By Steven Russolillo
- Associated Press
The firm warns a combination of a “deteriorating earnings outlook” and mounting signs of “cash-flow distress” will require the struggling retailer to make big changes to its turnaround strategy.
“In our view, ongoing deeply negative sales declines and rapid cash burn could compromise JCP’s ability to sustainably self-fund the investments needed for its turnaround strategy in its current form,” UBS analyst Michael Binetti wrote in a note to clients Friday morning.
He downgraded J.C. Penney’s rating to sell from neutral, while slashing his price target to $13 from $21.
Shares recently fell 4.7% to $18.25. The stock is down more than 45% over the last 12 months.
J.C. Penney is in the midst of a massive turnaround under former Apple Inc. retail executive Ron Johnson, who took over the CEO position in November 2011. The company’s sales have tumbled in recent quarters.
Johnson has said he isn’t in favor of diverging from his initial strategy of limiting discounts in favor of broadly lower everyday prices. But as we noted last month, it appeared the company became more flexible with its pricing strategies during the holiday season.
While the stock price rebounded a bit during the holiday season, the shift in strategy looks like it could come at a price. Binetti says he is “increasingly concerned” about the company’s near-term earnings trends.
“We believe trends were decelerating at the end of the third quarter and are concerned that a reversion to in-store discounting likely signals further deceleration in the fourth quarter,” he says. “We believe both the pricing and the new shop rollout strategies are at risk, and the cash preservation outlook is becoming increasingly concerning.”
With regards to the company’s cash position, UBS estimates the retailer ended 2012 with a little more than $700 million on the books. That would mark a significant deterioration from last year’s $1.5 billion ending balance, the firm says.
“We are incrementally concerned about liquidity if the company can’t reverse dismal sales trends in the near-term,” Binetti says.