PENNEY’S TO CLOSE 47 STORES
Byline: Vicki M. Young
NEW YORK — J.C. Penney Co. will take a $275 million pre-tax restructuring charge in its fourth quarter for a series of cost-cutting initiatives, including the closure of 47 sites affecting 5,000 department store sales associates.
The charge of 68 cents a share on an after-tax basis reflects a $185 million charge for the department store and catalog division and a $90 million charge for the Eckerd drugstore division. A total of 5,565 employees in both divisions will be affected by the cutbacks. First Call/Thomson Financial had estimated that J.C. Penney would post a profit of 7 cents a share in the quarter, which ends Jan. 27.
Allen Questrom, chairman and chief executive officer, said in a statement, “The company’s cash flow and liquidity remain strong. This restructuring program is an important step in our plan to improve future performance and enhance shareholder value. Our management team is committed to becoming more efficient and effective in providing value to our customers, while increasing bottom-line results.”
Following news of the announcement Thursday, credit ratings agency Moody’s Investors Service placed the long and short-term ratings of the Plano, Tex.-based retailer under review for a possible downgrade.
Elaine Francolino, vice president and senior credit officer at Moody’s, noted that the review was undertaken in light of the charge and the difficult operating environment for retailers, especially for department stores. While the review will focus on the retailer’s ability to maintain debt protection measures that are considered appropriate for an investment grade rated company, it will also look at the benefits from the restructuring charge and the progress of initiatives to improve profitability.
Francolino wrote in the Moody’s announcement, “For several years Penney’s has struggled to regain lost market share and improve profitability at the department stores+.Moody’s believes that the announced store closures and restructuring initiative, as well as the company’s after-Christmas cash position, are important steps in trying to return to past levels of performance.”
Penney’s stock closed at $12.25. down 56 cents, in New York Stock Exchange trading Thursday.
In the department store and catalog restructuring, 44 underperforming stores and three catalog outlet sites have been targeted for closure, with the majority to be shuttered during the first half of 2001. Although 5,000 store associates will be affected by the closures, many will be offered positions at other J.C. Penney retail sites. An additional 300 associates from headquarters and the field organization will be affected by the workforce reduction program. The $185 million charge for the division represents store closing costs, such as asset write-offs and future lease obligations, as well as asset impairments and workforce reductions.
In the Eckerd division, the $90 million charge consists primarily of the ending of a long-standing contract with Eckerd’s information systems outsource provider, eliminating 265 staff positions from Eckerd’s headquarters and field organization and asset write-offs from the portion of the drugstore investment in e-commerce development and the closure of the majority of J.C. Penney catalog desks in the Eckerd drugstores.
Preliminary information about the department stores for the five weeks ended Dec. 30 indicated sales decreased 2.7 percent to $2.56 billion from $2.63 billion in the comparable 1999 period, while comparable store sales — stores open for at least one year — dipped 1.6 percent in the same period. Catalog sales were down 3.9 percent. E-commerce sales, included in catalog sales, totaled $65 million in December compared with $36 million in the 1999 period.
The retailer last February embarked on a $530 million restructuring plan that impacted both its department store, catalog and Eckerd drugstore divisions.