Standard & Poor’s debt analysts came up with Sears Holdings Corp., General Motors Co. and Ford Motor Co.
Penney’s nearly $1 billion loss and 25 percent sales decline last year leave it in mostly uncharted retail waters. And while Myron “Mike” Ullman 3rd, on his second tour as chief executive officer, is working to calm vendors and get Penney’s back on an even keel, lenders are nervous and watching closely for each new development — much like vendors were keeping ultraclose watch on Sears a year ago.
Factors have imposed a roughly 1 percent surcharge on the vendors financing shipments to Penney’s and some are beginning to grumble that the company isn’t communicating enough with its lenders. “The concern is they’re losing money, they don’t know how much money they’re going to lose in cash burn in the first quarter and we haven’t been able to get information from them,” said one financial source. “They’re not giving us a budget that says to us, every month this is what they’re going to burn [through].”
Other factors said they were satisfied with the retailer, for now.
Penney’s has some cushion, but not much. The company doesn’t have any debt coming due until 2015, but it does need to keep its vendors and lenders happy — or least happy enough so they still shop goods to them.
While that’s a common situation in retail, the speed of Penney’s decline — a quarter of its market share in one year — makes it a special case.
But Standard & Poor’s debt analysts David Kuntz and Ana Lai pointed to Sears’ situation as a good analogy for Penney’s broader problems.
Both retailers have been reshaped by activist investors, both have slumping sales and not enough cash flow to meet their needs and both have significant real estate holdings that could be sold. Penney’s owns 39 percent of its stores, while Sears owns 29 percent of its doors.
“We think longer-term success for both [Penney’s and Sears] remains uncertain,” wrote Kuntz and Lai in a report. “Either company could eventually pursue a financial restructuring, though this is not yet our base case for 2013. But as we have seen with [Ford and General Motors], shifts or reversals in consumer purchasing behavior can overwhelm operational progress by a retailer facing difficult times. Or like GM and Ford, either or both retailers could resolve to focus on what matters and execute a successful comeback plan.”
Penney’s Ullman has been working hard and cleaning house. The company said Thursday that chief operating officer Michael Kramer left the firm and will be paid a lump sum cash payment of $2.1 million. Chief talent officer Daniel Walker also left Penney’s. Both were brought in by former ceo Ron Johnson, who tried and failed to remake Penney’s.
The company has hired bankers to help it raise money and The Wall Street Journal reported that it was in talks with a syndicate of lenders — including Wells Fargo, TPG Specialty Lending Inc. and Gordon Brothers Group — for a five-year, $500 million loan. Wells Fargo and TPG declined to comment and Gordon Brothers and Penney’s did not respond to requests for comment.
“Although we do not expect to see positive same-store sales [at Penney’s] during the next six months, a meaningful deceleration of the steep declines could signal the start of some modest success,” S&P said. “The best-case scenario would be a stabilization of same-store sales later this year.”
Sears, now lead by investor-turned-ceo Edward S. Lampert, faces its own troubles, although the firm’s situation is moving in slow motion compared with Penney’s.
“Sears needs strong merchandising leadership not financial leadership,” S&P noted.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews