Myron “Mike” Ullman 3rd isn’t wasting any time trying to get J.C. Penney Co. Inc. back on track.
A week after Ullman replaced Ron Johnson as the struggling retailer’s chief executive officer, Penney’s unveiled plans to “enhance” its financial flexibility and position by drawing funds from its credit line. The move follows Penney’s decision to hire Blackstone Group to determine ways to shore up its finances. It also recently hired Centerview Partners to advise on ways to raise cash.
Penney’s said it has borrowed $850 million of its $1.85 billion committed revolving credit facility, at an annual 5.25 percent interest rate. The borrowing has a maturity date of April 4, 2014.
For industry experts, the news was largely expected and counted more as a preemptive strike against upcoming volatility for the retailer’s languishing business.
Citi analyst Deborah Weinswig said the amount Penney’s drew was “more than expected” but she was “pleased to learn that JCP drew more than its current funding needs.”
“We still believe that a longer-term financing solution is necessary,” she said, noting that Penney’s is likely to burn through $722 million in cash in the first quarter alone. “In our view, JCP may ultimately need to raise $1 billion in total cash this year to buy time to stabilize the business.”
The retailer said Monday that it would use the $850 million to fund working capital requirements and capital expenditures, which includes the replenishment of inventory levels in anticipation of the completion of its newly renovated home departments, set to open next month.
“Earlier this year, we increased our revolving credit facility in anticipation of operating, working capital and capital expenditure needs, especially during the first half of the year,” said Penney’s chief financial officer Ken Hannah. “As we near completion of the home department transformation in over 500 stores, we have been undertaking and will continue to experience a significant inventory build and increase in capital expenditures.”
Market sources told WWD that they expect to hear from Ullman sooner rather than later regarding his plans for turning around the company.
“We’re waiting for first-quarter results,” said a credit analyst, who spoke on condition of anonymity. “We expect a significant loss for the quarter.”
The analyst expects a negative reaction from vendors and factors regarding first-quarter results, which “could have” some impact on access to credit.
Maggie Taylor, vice president, senior credit officer at Moody’s, said that based on her firm’s estimates, she could see Penney’s needing to borrow more money in the third quarter, but she declined to provide a figure.
“It depends on if Penney’s can raise money in the capital markets,” said Taylor, who has a ‘B3’ negative outlook on the retailer. “Because of how the credit metrics are currently, they have a lot of hurdles in front of them.”
The biggest hurdle — the “$100 million question” — is whether Penney’s can “win back the consumer,” Taylor noted.
That may be a tall order, the analyst said, considering the difficult macroeconomic environment.
“The growth rate is slower,” she said, pointing to flagging retail sales. “It’s a slow-growing retail environment.”
My character, Dinah Madani, is just the coolest, [most] badass woman imaginable," says @amberroserevah. The actress stars in @marvel's newest series on @netflix, @thepunisher. To prepare for her role, Revah sat down with Homeland agents to get a real sense of with Dinah's day-to-day life is really like. Read our full interview on WWD.com. #wwdeye (📷: @jilliansollazzo)
A scene from the 91st annual @macys Thanksgiving Day Parade. The parade, which boasts 50 million TV viewers and 3.5 million on-site spectators, is considered one of the largest and most watched parades in the world. (📷: Jason Szenes/EPA-REX)
The circus came to @bloomingdales 59th Street on Tuesday night and lit up Lexington Avenue with acrobatic dancers, death-defying knife throwing, sword swallowing and aerial acts with no net. The 45 minutes of theatrics built up to unveiling the holiday windows depicting @swarovski crystal-encrusted circus pieces and scenes from “The Greatest Showman” – songs from the soundtrack included. See the rest of the photos on WWD.com #wwdfashion (📷: Joshua Scott)
The psychedelic fashion that pervaded the ’60s is back with an exhibit at the @museumofcityny. “Mode New York: Fashion Takes a Trip” chronicles the changing styles from 1960 through 1973 and features designers such as @ysl, @oscardelarenta and more. The exhibition, which is on display through April 1, is organized into four periods: First Lady Fasion, Youthquake, New Bohemia and New Nonchalance. Pictured here is model Pat Bardonella during the Garvey Day Parade in 1968. (📷: @kwamebphoto) #wwdeye #wwdfashion
“People should be a lot more honest in expressing both the dark and light of themselves. We need to give each other the space to do that because it’s the only way we can grow and evolve,” says @noelwells of her new film “Mr. Roosevelt,” which is largely based on her own struggles. Unexpectedly leaving @nbcsnl in 2014 after just one season, Wells felt set back in her self-esteem and career trajectory. She quickly refocused her energy to more personal projects, which led to the completion of “Mr. Roosevelt.” Read the rest of WWD’s interview with the “Master of None” actress on WWD.com #wwdeye (📷: @jilliansollazzo)
@barbrastreisand is giving fans a chance to see her perform up close in a new concert series, which makes its debut on @Netflix today. From behind-the-scenes takes to her concert performance in Miami last December, the two-hour streaming special captures Streisand in her element. Pictured here is the singer/actress photographed for WWD in 1963. (📷: Palmieri Tony) #wwdeye #wwdarchive
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)