Is JCPenney Doomed?

JCP needs time and money to execute a turnaround. Uh oh.

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Is JCPenney Doomed?

To give credit where it’s due, JCPenney is starting to get back to its value-oriented merchandise roots. Unfortunately, Ron Johnson spent his 17 months with his company getting value merchandise out of the mix to make room for “shops” like Sephora and Joe Fresh. It’s going to take at least the same amount of time to undo that transplant. Also bear in mind that merchandise orders are placed about six months ahead of time, so JCP will do well to have a value feel by the all-important holiday-shopping season this year.

Bottom Line

Contrary to what the revival of the great JCPenney debate would imply, there’s nothing new here with the company. We’re just further along the path JCPenney has been on for a little more than a year.

Problem: That path still is pointing the company over the edge of the cliff.

Even if the stores’ merchandise reverts back to the low-end and basic mix that most of JCPenney’s former customers came to know and love, and even if Debra Berman can restore advertising greatness to the retailer’s marketing message, the company’s simply too deep into a sales slump to wiggle itself out of it before it runs out of cash.

At the same time JCPenney announced that CIT hadn’t cut credit to its vendors, it made a point of adding that it would end the second quarter with $1.5 billion in cash .. and that’s after netting $1.9 billion through the sale of debt during the quarter. A quick look at the numbers, and it appears Penney spent more than $1 billion last quarter alone.

The question is, on what? That spending sure doesn’t seem to be evident in or for the stores, or marketing.

Another round of financing might be necessary soon, and with recent credit downgrades from Moody’s and Standard & Poor’s, it’s unlikely any debt financing terms would be favorable. A secondary offering wouldn’t go over either, given how there’s still not a real turnaround team in place yet to entrust those dollars to.

Worse, analysts are getting back in a downgrade mood again with JCP; Imperial Capital and Citi have both lowered their opinion of the stock in recent days.

Sadly, barring a miracle and a whole lot of time, only a bankruptcy would completely clean the slate. Until then, there’s not a lot for anyone to look forward to here.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/is-jcpenney-doomed/.

©2014 InvestorPlace Media, LLC

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