JCPenney Shares Have Fallen 77% in 2020

The situation at troubled retailer JCPenney got more serious as the company missed a $12 million debt payment due Wednesday. The company said that it has a 30-day grace period to make the payment. “JCPenney made the strategic decision to … take advantage of the 30-day grace period to continue ongoing discussions with lenders and maximize financial flexibility,” said the company’s statement.

“JCPenney has been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet, a process that has become even more important as our stores have also closed due to the pandemic.” Late Tuesday and Wednesday, Reuters and USA Today reported that the chain is talking to advisors about possibly using bankruptcy to restructure its debt.

Moody’s Investors Service on Monday downgraded Penney’s corporate credit ratings with a negative outlook, revised from stable. Although the retailer’s liquidity is in good shape, “the widespread store closures as a result of the coronavirus pandemic and the continued suppression of consumer demand is expected to pressure J.C. Penney’s EBITDA, impede its turnaround strategy and weaken its leverage to unsustainably high levels” Moody’s Vice President Christina Boni said.

Penney’s stock, trading around 25 cents, was down about 22% on Wednesday afternoon. Penney has a market cap of about $79.7 million. Its shares have fallen 77% in 2020.

Although JCPenney has enough liquidity to survive the next several months, it may face challenges refinancing its debt in the future, said David Silverman, senior director at Fitch Ratings. “There’s a good chance they can survive, but this is no layup,” said Craig Johnson, president of Customer Growth Partners. “This is going to be a three-pointer deep in the corner with time running out.” JCPenney will need to drastically reduce its 850 stores, Johnson added.

Todd “Bubba” Horwitz
BubbaTrading.com