WWD.com/business-news/department-stores/martha-stewart-revises-jc-penney-deal-7239883/
government-trade
government-trade

Martha Stewart Revises J.C. Penney Deal

The amended agreement covers a more focused range of product categories over a shorter period of time, through June 30, 2017.

NEW YORK — J.C. Penney Co. Inc. and Martha Stewart Living Omnimedia Inc. on Monday took a big stride toward resolving their legal dispute with Macy’s Inc.

The two firms revealed they have revised the partnership agreement covering their licensing and design deal that was at the center of the court battle with Macy’s. The lawsuit, which was filed in a New York state court by Macy’s in 2011, claimed that MSLO violated its deal to sell exclusive home goods in its stores when it inked a competing agreement with Penney’s. In addition to being able to sell Stewart home wares, Penney’s also bought a 16.6 percent stake in the design firm and scooped up a seat on the design firm’s board.

The new agreement essentially reverses the bulk of the Penney’s-MSLO deal. Now it features a more focused range of product categories over a shorter period of time, through June 30, 2017, versus the original deal, which would have expired in 2021.

RELATED STORY: Judge in Macy’s Trial Questions Media Reports >>

Neither MSLO nor Penney’s would provide further details of the financial terms of the deal, but they said Penney’s would sell through any unbranded product at issue in the Macy’s case and that it would not manufacture any more.

Calling the deal a “complete win for Macy’s and a vindication,” Macy’s lawyer Theodore Grossman, of Jones Day, told WWD that the “parties obviously understood they were going to lose.”

Judge Jeffrey Oing, who is presiding over the case, has been mulling over a verdict since the trial ended in August. His verdict may seem more or less irrelevant now, but Grossman noted that damages are still a consideration, as Macy’s has “lost money” on the cost of the case, as well as on any sales from the Stewart deal with Penney’s.

Under the new deal, MSLO will continue to design Martha Stewart branded products for Penney’s in the following categories: window treatments and hardware, lighting, rugs, holiday and celebrations. These categories were not disputed in the Macy’s lawsuit.

MSLO will receive design fees, guaranteed minimum royalties and the 11 million shares of MSLO Class A common stock that Penney’s currently owns. Additionally, Penney’s will no longer have representation on MSLO’s board. Penney’s paid $38.5 million for the MSLO shares.

“Hopefully this will resolve Macy’s’ original concerns,” an MSLO spokeswoman said, adding that “it’s business as usual” between the design company and Macy’s.

As for the revised agreement with Penney’s, MSLO founder and non-executive chairman Stewart said, “We are designing excellent products for 2014, and we look forward to seeing them in stores and online at jcp.com.”

According to Penney’s, the amended contract would actually “save” Penney’s money in the long run, which would be a silver lining for the struggling retailer.

“We are happy to be moving forward and continuing to provide our customers with quality products from the MarthaHome collection, which includes MarthaWindow, one of our best-selling lines of window treatments,” said Penney’s chief executive officer Myron “Mike” Ullman 3rd.

News of the revised agreement came after the equity markets closed the day’s trading session.

Shares of J.C. Penney Co. Inc. fell 8.3 percent Monday on the New York Stock Exchange after an analyst slashed the per share price target to $1.

The stock closed at $6.42, but had fallen as low as $6.27 in intraday trading.

Imperial Capital analyst Mary Ross-Gilbert cut her price target to $1 from $5 over increasing concerns that the retailer may require a financial restructuring next year in the form of bankruptcy court protection.

A company spokeswoman said, “When combined with the reported improvements in our business trends, the need for ‘financial restructuring’ is purely speculative and not grounded in fact.”

The company said on Oct. 8 that it has liquidity of more than $2 billion following the $785 million in net proceeds from its secondary offering and $1.3 billion in existing liquidity.

In Ross-Gilbert’s research note, she said that recent reports on credit problems and bankruptcy, even if inaccurate or misleading, are “wearing down vendors and management” and that, as a result, the Penney’s “board may find that it ultimately has no choice but to seek bankruptcy court protection via a voluntary filing in 2014 if vendors tighten trade credit terms and investors prove unwilling to support $5.8 billion in debt and potential medium- to longer-term financing needs.”

Sources in the credit community said Penney’s has payment terms of net 60 days, which is causing the factoring community to approve only orders scheduled for shipping now so they don’t get caught with unpaid invoices that are due post holiday. Vendors who are shipping post-holiday orders are doing so based solely on their own internal business decisions to support the retailer, these credit individuals said. Most factors at this point are holding approvals for any post-holiday orders until after the new year because they want to see what kind of holiday season Penney’s has before extending more credit to their clients.

Ullman told WWD last week that the company is current in payments to vendors and that “only 5 percent” of Penney’s vendor base is factored. He also emphasized the support Penney’s is receiving from suppliers.