At a hearing Thursday before the Texas bankruptcy court overseeing the case, the retailer’s attorneys sought an extension until mid-July to pay roughly $34 million in lease obligations that the retailer said it would owe for the months of June and July.
The retailer has also not yet paid its May rent on most of its leased stores — roughly 542 of its 611 leased properties, according to court filings. The company has 842 stores, of which it owns some 387, it has said in court filings.
U.S. Bankruptcy Judge David Jones allowed the company to extend the deadline to pay rent to July 13, right before a mid-July deadline for it to finalize a concrete business plan, or wind up switching to some sort of sale.
On Thursday, some shareholders on the call at the hearing also alluded to prospective suitors potentially interested in some sort of deal with J.C. Penney, but the company’s attorneys didn’t comment, and Jones said it was too soon to infer interest in the company based on any speculation about the case so far.
“The fact that somebody signs a non-disclosure agreement, that doesn’t mean that they’re a suitor,” Jones said. “It means that they’re kicking tires. The fact that they get into a data room and look around, doesn’t mean that they’re prepared to write a check. It means that they’re looking to see if they think that it’s an opportunity.”
Since temporarily closing all its stores in March during the pandemic, the retailer has reopened some 475 units, with plans to open more in the coming weeks, and the aim of reopening more fully by the end of July.
The reopening process comes with expenses related to addressing store safety and accepting goods to keep shelves stocked, the company has said. It’s also recovering from stores being closed for weeks — in April alone, the company’s year-over-year net sales dropped by some 88 percent due to negligible store sales, according to the company.
Now it is contending with limited mall traffic even where it has reopened, Aparna Yenamandra of Kirkland & Ellis LLP, which represents J.C. Penney in the proceedings, said at the hearing.
“As we continue to reopen safely, we expect that we’ll continue to see mall traffic steadily increase,” she said.
The stores where Penney’s did pay rent in May include those where Sephora stores operated, said James Mesterharm, a managing director at AlixPartners LLP, and restructuring adviser to J.C. Penney since March. Penney’s and the LVMH Moët Hennessy Louis Vuitton-owned beauty retailer have had a joint enterprise operating contract through which Sephora has stores within Penney’s locations
In the meantime, Penney’s will continue to negotiate rent with its landlords.
A number of landlords had argued that the retailer shouldn’t be allowed to extend its lease payment deadlines during their ongoing negotiations in order to arguably get “a leg up” during the discussions, but the judge overruled those objections.