J C Penney Company Inc (NYSE:JCP) has a problem. JCP was in the middle of a turnaround and now the CEO Marvin Ellison has jumped ship for Lowe’s. Of course, the initial thought on Ellison’s move is that JCP must be doomed. Ellison’s departure is really only half of the issue. He did a solid job of retiring debt, bolstering the financials and boosting the credit facility, but the real doom and gloom is hanging over the mall department store sector in general.
It is worth noting, Ellison did little to establish an identity in apparel for JCP. He came from Home Depot and was really just pushing forward an outlined agenda. Ellison brought power tools to the shelves of JCP thinking that former Sears customers would want to buy appliances and tools from JCP and that has not seemingly proved out. And this is one of the problems at JCP, why do shoppers have any reason to choose JCP over Lowe’s, Target or Home Depot ? The bullish math on that does not really add up.
J C Penney Company Inc (NYSE:JCP) is one of the nation`s largest apparel and home retailers, combines an expansive footprint of over 860 stores across the United States and Puerto Rico with a powerful e-commerce site, jcp.com, to deliver style and value for all hard-working American families. At every touchpoint, customers will discover stylish merchandise at incredible value from an extensive portfolio of private, exclusive and national brands. Reinforcing this shopping experience is the customer service and warrior spirit of approximately 98,000 associates across the globe, all driving toward the Company`s mission to help customers find what they love for less time, money and effort. For additional information, please visit jcp.com.
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The stock does have decent cash flow and they are treading water with flat comps. There does not seem to be a fear for bankruptcy or even restructuring in the near future.
Here is a useful quote from the recent financial earnings coference call, this is Jeffrey Davis CFO and VP:
“Our capital allocation priority remains to deleverage the balance sheet through debt retirement at maturity or proactive refinancing and to rebuild cash balances. We remain confident to fund near-term maturities from free cash flow. As expected and given the $190 million in cash utilized early in the quarter to retire the February notes, we drew against our credit facility during the quarter to fund a portion of our seasonal working capital needs. We ended the quarter with an outstanding balance of $351 million. As such, our liquidity position at the end of the first quarter was approximately $2 billion.”
“Cash and cash equivalents at the end of the first quarter were $181 million, which was $182 million less than the end of the first quarter last year. Our reduced cash position is primarily attributable to the February $190 million debt repayment. In addition, capital expenditures, net of landlord allowances, for the quarter were $103 million. During the first quarter, free cash flow was a use of cash of $421 million, an increase of $128 million compared to last year’s use of cash of $293 million.”
Now, financials aside, JCP does have some things going for it like the Sephora relationship, expanded coupon sales and a thriving home goods section. It is in these areas that the company needs to hang their hat and find a CEO who can build them up in these areas. However, from a PR perspective JCP does not look good. Ellison left them in the lurch and shareholders would have preferred a smoother transition and without it are now scared. JCP is down more than 17% in the last month because of it.
J C Penney Company Inc (NYSE:JCP) is up over the last five days by a few points, but the stock in such an uncertain place that buying might be largely foolish. JCP does have some selling points, but interested investors looking to buy low might want to wait and see what the new CEO has to say. Sign-up for continuing coverage on shares of $JCP stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $JCP, either long or short, and we have not been compensated for this article.