Shares of J.C. Penney Co. Inc. dipped 0.02 percent to close at $14.58 Thursday even after the retailer denied there was any problem with the factoring arm of CIT.
The stock had rebounded in early-morning trading on the New York Stock Exchange following the denial, climbing 3.2 percent to $15.07 and hitting an intraday high of $15.53. More than 27.5 million shares changed hands, compared with a three-month average volume of 9.3 million.
Penney’s said it was told directly by CIT that reports that the factoring firm had stopped approving orders were untrue. It added that CIT-factored merchandise is less than 4 percent of the retailer’s overall inventory for the year. Penney’s also said that it expects to close the quarter with $1.5 billion in cash on its balance sheet.
Shares of Penney’s fell 10.2 percent on Wednesday to close at $14.60 over concerns about its cash burn rate. Reports had surfaced that CIT had stopped approvals on some vendors scheduled to ship orders to Penney’s in January.
Credit sources told WWD that CIT had not stopped approving orders, and that in some cases it had asked its clients for more information about the orders before making any final decision on whether to go ahead with any approvals.
Credit sources on Thursday confirmed that the second-quarter earnings report, expected Aug. 20, will provide more details regarding Penney’s financial condition. They don’t expect any change in factoring decisions until after that report is issued.
In addition, credit analysts said that the $1.5 billion referred to by Penney’s as its cash-on-hand expectations at the end of the quarter is not really meaningful until the quarterly financial report, when investors will find out the exact current availability under the retailer’s credit facility and the revolver’s terms.
Penney’s denial didn’t allay all concerns.
Paul Trussell, retail analyst at Deutsche Bank, is forecasting a cash burn of $1 billion in the second quarter. He’s also forecasting a second-quarter same-store-sales decline of 9 percent and a loss of $1.10 a share for the period. He noted that the “slow-paced turnaround is leading to a high rate of cash burn.”
Matthew Boss, retail analyst at J.P. Morgan, is forecasting a slightly higher cash burn rate of $1.2 billion for the second quarter. He said that the availability of cash under the revolver is “adequate to cover the seasonal build and for Penney’s to post additional letters of credit for vendors” if needed. The analyst concluded that it would take another year of weak results, $1 billion in capital expenditures and working capital usage before Penney’s would run out of cash and availability in late 2014.