Shares of J.C. Penney Co. Inc. dropped 10.2 percent Wednesday over concerns about its cash burn rate.
Shares of the retailer closed at $14.60 on the New York Stock Exchange and slipped a half percent more in early after-market trading.
The slippage was due to rumors that factoring giant CIT had stopped approvals on some vendors shipping to Penney’s over credit concerns.
According to credit sources, CIT hasn’t stopped approving orders for certain, mostly likely smaller, vendors. What it has chosen to do is ask some clients to provide additional information before making any final decision on orders scheduled to be delivered in January.
The sources said CIT has had conversations with the retailer and knows that the second-quarter earnings report won’t be good. The company is expected to report earnings on Aug. 15.
One mutual fund manager said no one expects a great report from Penney’s. That’s because Myron “Mike” Ullman, who took over the chief executive officer role from former ceo Ron Johnson, can’t really make any significant impact until the third quarter. “He has made some impact in the second quarter, but it’s a small impact,” said the fund manager, who requested anonymity.
Credit sources said CIT is likely being cautious in order to limit its risk exposure to Penney’s. It is said to have exposure of around $180 million to $210 million from various client accounts, and is believed to be close to reaching the limit of its risk cap for the retailer. One way to alleviate some of the risks is to tack on an additional surcharge to clients who wish to ship to Penney’s.
Credit sources believe that no final decision on whether to ship will be made by factors until after Penney’s posts its second-quarter results. The results should help provide a clearer picture of the retailer’s losses, as well as indicate how many more millions it could lose and over what period of time before there is need for serious concern.
More pressing for the retailer is today’s hearing before Judge Jeffrey Oing in New York Supreme Court in which lawyers for Penney’s, Macy’s Inc. and Martha Stewart Living Omnimedia Inc. will present their closing arguments in the ongoing trial over Penney’s selling Martha Stewart-branded merchandise. Macy’s sued Penney’s and MSLO more than a year ago over MSLO’s 2011 deal with Penney’s to create Martha Stewart-branded shops-in-shop this past spring. Penney’s also bought a 16.6 percent stake in MSLO as part of the deal.