J.C. Penney says it is working to stay on track.
At a hearing in Texas bankruptcy court on Wednesday, the retailer, which is facing some pressing deadlines this month to get approval for a business plan, indicated that its stores are performing better than expected, and that it is gearing up to face upcoming milestones in the process.
The retailer has until July 15 to get its lenders to approve a business plan. At the same time, as COVID-19 cases surge again in many U.S. states, it has led to momentum around re-closing policies in some of them and there are ongoing concerns about the safety of store employees and customers.
At Wednesday’s hearing, J.C. Penney’s attorney Joshua Sussberg of Kirkland & Ellis LLP addressed that uncertainty, and referenced warnings by Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, who testified this week before a Senate committee about the rapidly mounting number of new cases in Florida, Texas, Arizona, California and other states.
But Sussberg indicated he believed Penney’s performance so far, and its cash on hand, would help the retailer weather the changing scenario. The company has “significant cash on hand” of roughly $980 million, and is running roughly $100 million ahead of its projected budget, he said.
“There’s a lot of doubt in this environment, and obviously, having cash is incredibly important,” Sussberg said at the hearing. “And especially in a world in which there’s potentially a second outbreak. And if anyone’s watching the news, and if you’re listening to Dr. Fauci, there are real concerns about various states, including Texas, having to shut down yet again.
“So the company is considering, and weighing very importantly, what it means to ensure that this plan, to the extent we can move forward and have support from its lenders, is viable,” Sussberg said.
J.C. Penney had entered the Chapter 11 proceedings with a plan to facilitate a reorganization that would separate its real estate assets and its operating asset, which its advisers in the case frequently refer to as a “prop co/op co” structure.
On Wednesday, Sussberg said that its marketing process during the bankruptcy has centered around the so-called “op co” structure, with 20 parties signing non-disclosure agreements, including four parties who have spent “a significant amount of time” with the company’s advisers and management to consider the opportunity to own the operating company. Those discussions are still ongoing, Sussberg said.
So far during the pandemic, J.C. Penney has reopened a total of about 831 stores — the vast majority of its 846 locations. At the same time, the retailer is also following through on plans to shrink its footprint — it had previously disclosed plans to close 154 stores, a process it will execute in phases. The retailer is already in the process of closing 134 of them, with plans to close more locations this month, Sussberg said Wednesday.
The company’s online sales appear to have helped boost its operations, with year-over-year e-commerce comp sales up 19.5 percent for June, he said. As for physical store sales, off-mall locations are performing better than mall locations, he noted, attributing it to consumer habits during the pandemic. The retailer has opened some of its higher-performing stores more recently in the past three weeks.
J.C. Penney has received an extension until July 13 to pay rent. In the meantime, the retailer is also “continuing to pound the pavement with respect to lease negotiations,” Sussberg said.
In June, the retailer received the court’s approval for a $900 million debtor-in-possession package, which Penney’s advisers said includes $450 million in new money.
The retailer has projected a goal of having a Chapter 11 plan or a sale confirmed within 160 days, or roughly a little over five months, from when it filed for bankruptcy.