J.C. Penney Co. Inc. could raise $1 billion in the form of a stock offering.
The company said after the equity markets closed Thursday that it will offer to the public at least 84 million shares of its common stock, and that it intends to give Goldman Sachs, the underwriter, a 30-day option to purchase an additional 12.6 million shares of common stock.
Penney’s said it will use the net proceeds from the offering for general corporate purposes.
The public offering comes after Myron “Mike” Ullman 3rd, Penney’s chief executive officer, told investors Wednesday that the company “wouldn’t raise capital until the end of the year” and that they should “not believe that circus you hear about,” according to one participant.
The offering would raise $875 million based on the closing price of Penney’s stock at $10.42 on Thursday. The additional 12.6 million shares would raise another $125 million if the option is picked up.
Shares of Penney’s fell 4.9 percent to $9.91 in after-market trading following the announcement of the stock offering. The decline probably stems from the fact that the offering of 96.6 million shares, if the option were picked up, would dilute the investment of existing shareholders. Penney’s already has 220.5 million shares outstanding.
The stock offering comes following several days of turmoil in Penney’s shares that saw them plumb depths they hadn’t hit in 13 years. The retailer on Thursday morning issued a statement on its business aimed at calming the growing panic on Wall Street about its liquidity.
“The company still anticipates it will experience positive comparable-store sales trends coming out of the third quarter and throughout the fourth quarter of 2013,” Penney’s said.
The company also noted it was “pleased with its progress thus far” in its turnaround efforts and in the “traction” its initiatives are starting to achieve. The retailer noted that it “is starting to see greater predictability in its performance across many areas.
“The company continues to be encouraged by improvements in purchase conversion both in store and on jcp.com, primarily due to being back in stock in key items and sizes the customer expects to find at J.C. Penney,” the retailer said. “Overall sales on jcp.com continue to trend double digits ahead of last year.”
Penney’s stock on Thursday hit a high of $11.22 in intraday trading earlier in the day before slipping down again as investors tried to digest debt and liquidity concerns. That’s after shares of Penney’s on Wednesday fell by as much as 16.6 percent to $9.93 in intraday trading, a level not seen since October 2000. The day before, Goldman debt analysts Kristen McDuffy and Ryan Gallant initiated coverage on Penney’s with an underperform rating and argued that “a combination of weak fundamentals, inventory rebuilding and an underperforming home department will likely challenge J.C. Penney’s liquidity levels in [the third quarter].”
Dana Telsey of Telsey Advisers on Thursday cut her target price for Penney’s stock to $7 from her previous target of $11.
Other analysts are more positive. Sterne Agee’s equity analyst Charles Grom has a “buy” rating for Penney’s stock. Sterne Agee held an investors’ meeting Wednesday, where Ullman spoke.
According to Grom, “Encouragingly, where the team has begun to layer in more coupons, utilization levels have returned to historical levels, which is important as the average [Penney’s] shopper will return more to the store over the next few months.” Grom said the key sound bite from the meeting with Ullman was when “we bring in the ‘new’ stuff…it is selling.”
Grom said to expect a return of private brands to the historical sales mix of 50 percent versus the current 33 percent; the continued reintroduction of the $1 billion St. John’s Bay brand, which is 10 percent below targeted levels, as well as addressing space allocation issues. For the latter, he noted that Joe Fresh was allocated “valuable front-of-store space, but productivity was below desired levels.”
Credit sources said earlier this month that while the retailer’s liquidity is OK for now, many are advising their vendor clients only to work with Penney’s one month at a time. And some factors, most of which were already charging a 1 percent surcharge to approve Penney’s orders, are eyeing the possibility of raising the surcharge for orders to be delivered next year. Separately, in a filing with the Securities and Exchange Commission, Penney’s said its controller, Mark R. Sweeney, has left the company. Dennis P. Miller, the retailer’s senior vice president for finance, will serve as interim principal accounting officer.
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